Waterloo Machining, Inc. paid $1,800,000 for factory equipment on January 1, 2012. It paid $100,000 for delivery and $220,000 for installation and modifications. Waterloo received $60,000 upon sale of the old equipment. The new equipment has an estimated useful life of 5 years, an estimated residual value of $100,000 andis expected to produce 500,000 units.
Required: Answer each of the following questions in the space provided.
a) Determine the acquisition cost of the new equipment.
b) Assume that the factory equipment was recorded at $2,100,000. Calculate the depreciation expense for each year 1-3 of the equipment's useful life under the following methods and assumptions.
Year Units Produced Straight Line
2012 125,000
2013 130,000
2014 100,000
c) On December 31, 2015 Waterlooestimated that the equipment had a useful life of four years and 200,000 units of productive capacity remaining. Compute 2015 depreciation expense under both methods assuming that 85,000 units were produced in 2015.