111) Big Valley Ltd. purchased machinery on January 2, 2009, at a total cost of $85,000. The machinery's estimated useful life is 8 years or 60,000 hours, and its residual value is $5,000. During 2009 and 2010, the machinery was used 7,000 and 7,500 hours, respectively.
Compute depreciation under straight-line, units-of-production, and double-declining-balance methods for 2009 and 2010.
20092010
Straight-line depreciation________________
Units-of-production depreciation________________
Double-declining-balance
depreciation________________
112) Explain the concept of depreciation. Include in your discussion one common misconception regarding depreciation and its impact on the finances of a business.
113) For each of the independent situations below, determine the age of the asset in question. All assets were acquired at the beginning of the year.
a.The balance in the Buildings account is $400,000 while the balance sheet shows the book value of the buildings at $217,600. The notes to the financial statements indicate that straight-line depreciation is used for all capital assets and that residual values are estimated at 5% of cost. The estimated life of the buildings is 25 years.
b.The book value of the delivery equipment is $51,520. The cost of the delivery equipment was $80,500. The company uses the straight-line method of depreciation for delivery equipment and estimates life at 5 years or 50,000 units. So far, 27,000 units have been produced. Residual value is 10% of cost.
c.The balance in the Accumulated Depreciation account for furniture is $21,875. The furniture has been amortized a total of 43.75% of its original cost. The company's notes to the financial statements indicate that double-declining-balance depreciation is used for all furniture. The company estimates useful life at 8 years and residual value at 20% of cost.