Ivan Manufacturing Company purchased a robot for $360,000 at the beginning of year 1. The robot has an estimated useful life of four years and an estimated residual value of $30,000. The robot, which should last 20,000 hours, was operated 6,000 hours in year 1; 8,000 hours in year 2; 4,000 hours in year 3; and 2,000 hours in year 4.
Required
1. Compute the annual depreciation and carrying value for the robot for each year assuming the following depreciation methods:
a. Straight-line:
year 1
year 2
year 3
year 4
b. Production:
year 1
year 2
year 3
year 4
c. Double-declining-balance
years 1
year 2
year 3
year 4
2. If the robot is sold for $375,000 after year 2, what would be the amount of gain or loss under each method?
a. straight-line:
b. production:
c. double-declining balance:
Answers & Comments
Verified answer
a. Straight-line: 360,000 / 30,000 = 330,000 / 4 years= 82,500 (22.92%)
year 1__ $82,500
year 2__ $82,500_$165,000
year 3__ $82,500
year 4__ $82,500
____ 330,000
b. Production___Units / 20000*330000
year 1__ $99,000
year 2__ $132,000__ 231,000
year 3__ $66,000
year 4__ $33,000
_______ 330,000
c. Double-declining-balance___Double-declining (2 * 22.92%) = 45.83%
year 1__ $151,250
year 2__ $81,927 233,177
year 3__ $44,377
year 4__ $22,446
Year_Base___Dep'n___ Accum__ Book Value
1__ 330,000_151,250__151,250__$178,750
2__ 178,750__81,927__233,177___$96,823
3__ 96,823__ 44,377___277,554___$52,446
4__ 52,446__22,446____300,000___$30,000
____________ 300,000
2. If the robot is sold for $375,000 after year 2, what would be the amount of gain or loss under each method?
a. straight-line__ $210,000 G
b. production:__ $276,000 G
c. double-declining balance:__$278,177 G
DR Cash_________375,000
CR Assets- Robot__330,000
DR Accumulated Depreciation__165,000
CR Gain on Disposal of Asset___210,000
DR Cash_________375,000
CR Assets- Robot__330,000
DR Accumulated Depreciation__231,000
CR Gain on Disposal of Asset__276,000
DR Cash_________375,000
CR Assets- Robot__330,000
DR Accumulated Depreciation__233,177
CR Gain on Disposal of Asset__278,177