MANAGEMENT SAM-1000 On January 3, Jose Rojo, Inc. paid $224,000 for equipment used
Question # 00328596
Posted By:
Updated on: 06/30/2016 07:06 AM Due on: 06/30/2016
P8-46a
On January 3, Jose Rojo, Inc. paid $224,000 for equipment used in manufacturing
automotive supplies. In addition to the basic purchase price, the company paid $700
transportation charges, $100 insurance for the equipment while in transit, $12,100 sales
tax, and $3,100 for a special platform on which to place the equipment in the plant. Jose
Rojo, Inc. management estimates that the equipment will remain in service for five years
and have a residual value of $20,000. The equipment will produce 50,000 units the first
year, with annual production decreasing by 5,000 units during each of the next four years
(i.e. 45,000 units in year 2; 40,000 units in year 3; and so on for a total of 200,000 units).
In trying to decide which depreciation method to use, Jose Rojo, Inc. requested a
depreciation schedule for each of the three depreciation methods (straight-line, units-of
production, and double-declining-balance).
Requirements
1. For each depreciation method, prepare a depreciation schedule showing asset cost,
depreciation expense, accumulated depreciation, and asset book value. For the units-of
production method, round depreciation per unit to three decimal places.
Req. 1
Straight-Line Depreciation Schedule
Depreciation for the Year
ASSET
DATE
Year 0
COST
DEPRECIATIONDEPRECIABLE DEPRECIATION ACCUMULATED
RATE
×
COST
=
EXPENSE
DEPRECIATION
$240,000
BOOK
VALUE
$240,000
Year 1
1/5
$220,000
$ 44,000
$ 44,000
196,000
Year 2
1/5
220,000
44,000
88,000
152,000
Year 3
1/5
220,000
44,000
132,000
108,000
Year 4
1/5
220,000
44,000
176,000
64,000
Year 5
1/5
220,000
44,000
220,000
20,000
Computations:
Asset cost: $224,000 + $700 + $100 + $12,100 + $3,100
= $240,000
Straight-line: ($240,000 – $20,000) / 5 years = $44,000
Units-of-Production Depreciation Schedule
Depreciation for the Year
ASSET DEPRECIATION NUMBER
DEPRECIATION ACCUMULATED BOOK
DATE COST
PER UNIT×
OF UNITS = EXPENSE
DEPRECIATION
VALUE
Year 0
$240,000
$240,000
Year 1
$1.10
50,000
$ 55,000
$ 55,000
185,000
Year 2
1.10
45,000
49,500
104,500
135,500
Year 3
1.10
40,000
44,000
148,500
91,500
Year 4
1.10
35,000
38,500
187,000
53,000
Year 5
1.10
33,000
220,000
20,000
30,000
Computations:
Units-of-production: ($240,000 – $20,000) / 200,000 units = $1.10/kilometer
Double-Declining-Balance Depreciation Schedule
Depreciation for the Year
DATE
Year 0
ASSET
DDB
COST DEPRECIATION
RATE ×
$240,000
BOOK
VALUE
=
DEPRECIATION ACCUMULATED
EXPENSE
DEPRECIATION
BOOK
VALUE
$240,000
Year 1
0.40
$240,000
$ 96,000
$ 96,000
144,000
Year 2
0.40
144,000
57,600
153,600
86,400
Year 3
0.40
86,400
34,560
188,160
51,840
Year 4
0.40
51,840
20,736
208,896
31,104
11,104
220,000
20,000
Year 5
Computations:
DDB rate: (1/5 years × 2) =.40
Depreciation for Year 5: $31,104 – residual value of $20,000 = $11,104
2. Jose Rojo, Inc. Prepares financial statements using the depreciation method that
reports the highest income in the early years of asset use. For income tax purposes
the company uses the depreciation method that minimizes income taxes in the early
years. Consider the first year Jose Rojo inc, uses equipment. Identify the
depreciation methods that meet Jose Rojo’s objectives, assuming the income tax
authorities permit the use of any method.
On January 3, Jose Rojo, Inc. paid $224,000 for equipment used in manufacturing
automotive supplies. In addition to the basic purchase price, the company paid $700
transportation charges, $100 insurance for the equipment while in transit, $12,100 sales
tax, and $3,100 for a special platform on which to place the equipment in the plant. Jose
Rojo, Inc. management estimates that the equipment will remain in service for five years
and have a residual value of $20,000. The equipment will produce 50,000 units the first
year, with annual production decreasing by 5,000 units during each of the next four years
(i.e. 45,000 units in year 2; 40,000 units in year 3; and so on for a total of 200,000 units).
In trying to decide which depreciation method to use, Jose Rojo, Inc. requested a
depreciation schedule for each of the three depreciation methods (straight-line, units-of
production, and double-declining-balance).
Requirements
1. For each depreciation method, prepare a depreciation schedule showing asset cost,
depreciation expense, accumulated depreciation, and asset book value. For the units-of
production method, round depreciation per unit to three decimal places.
Req. 1
Straight-Line Depreciation Schedule
Depreciation for the Year
ASSET
DATE
Year 0
COST
DEPRECIATIONDEPRECIABLE DEPRECIATION ACCUMULATED
RATE
×
COST
=
EXPENSE
DEPRECIATION
$240,000
BOOK
VALUE
$240,000
Year 1
1/5
$220,000
$ 44,000
$ 44,000
196,000
Year 2
1/5
220,000
44,000
88,000
152,000
Year 3
1/5
220,000
44,000
132,000
108,000
Year 4
1/5
220,000
44,000
176,000
64,000
Year 5
1/5
220,000
44,000
220,000
20,000
Computations:
Asset cost: $224,000 + $700 + $100 + $12,100 + $3,100
= $240,000
Straight-line: ($240,000 – $20,000) / 5 years = $44,000
Units-of-Production Depreciation Schedule
Depreciation for the Year
ASSET DEPRECIATION NUMBER
DEPRECIATION ACCUMULATED BOOK
DATE COST
PER UNIT×
OF UNITS = EXPENSE
DEPRECIATION
VALUE
Year 0
$240,000
$240,000
Year 1
$1.10
50,000
$ 55,000
$ 55,000
185,000
Year 2
1.10
45,000
49,500
104,500
135,500
Year 3
1.10
40,000
44,000
148,500
91,500
Year 4
1.10
35,000
38,500
187,000
53,000
Year 5
1.10
33,000
220,000
20,000
30,000
Computations:
Units-of-production: ($240,000 – $20,000) / 200,000 units = $1.10/kilometer
Double-Declining-Balance Depreciation Schedule
Depreciation for the Year
DATE
Year 0
ASSET
DDB
COST DEPRECIATION
RATE ×
$240,000
BOOK
VALUE
=
DEPRECIATION ACCUMULATED
EXPENSE
DEPRECIATION
BOOK
VALUE
$240,000
Year 1
0.40
$240,000
$ 96,000
$ 96,000
144,000
Year 2
0.40
144,000
57,600
153,600
86,400
Year 3
0.40
86,400
34,560
188,160
51,840
Year 4
0.40
51,840
20,736
208,896
31,104
11,104
220,000
20,000
Year 5
Computations:
DDB rate: (1/5 years × 2) =.40
Depreciation for Year 5: $31,104 – residual value of $20,000 = $11,104
2. Jose Rojo, Inc. Prepares financial statements using the depreciation method that
reports the highest income in the early years of asset use. For income tax purposes
the company uses the depreciation method that minimizes income taxes in the early
years. Consider the first year Jose Rojo inc, uses equipment. Identify the
depreciation methods that meet Jose Rojo’s objectives, assuming the income tax
authorities permit the use of any method.
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Rating:
/5
