Question: Dougan Company purchased equipment on January 1, 2014 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life.
Answer the following independent questions.
1. Compute the amount of depreciation expense for the year ended December 31, 2014, using the straight-line method of depreciation.
2. Compute the amount of depreciation expense for the year if 16,000 units of product are produced in 2014 and 24,000 units are produced in 2015 assuming the company uses the units-of-activity depreciation method.
3. If the company uses the double-declining-balance method of depreciation, what is the depreciation expense for the first three years (2014, 2016)?
4. Frank White the new controller of Youngman Company, has reviewed the expected useful lives and salvage values of selected depreciable assets at the beginning of 2015. His findings are as follows. All assets are depreciated by the straight-line method. Youngman Company uses a calendar year in preparing annual financial statements. After discussion, management has agreed to accept Frank's proposed changes. Compute the revised annual depreciation on each asset for the year of 2015.
| Type of Asset |
Date Acquired |
Original Cost |
Accumulated Depreciation (01/01/15) |
Proposed Useful Life (Yrs) |
Proposed Salvage Value |
| Building |
1/1/2009 |
1,600,000 |
228,000 |
50 |
52,000 |
| Warehouse |
1/1/2010 |
207,000 |
40,000 |
20 |
5,000 |