Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000

Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000. The equipment was expected to have a useful life of four years, or 20,000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during Year 1, 6,400 hours in Year 2, 4,400 hours in Year 3, and 2,000 hours in Year 4.

Instructions

1. Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:

Depreciation Expense Year Straight-Line Method Units-of-Activity Method Double-Declining-Balance Method

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Answer:

1.

a. Straight- b. Units-of- c. Double-

Line Activity Declining-Balance

Year Method Method Method

Year 1 $ 71,250 $102,600 $160,000

Year 2 71,250 91,200 80,000

Year 3 71,250 62,700 40,000

Year 4 71,250 28,500 5,000

Total $285,000 $285,000 $285,000

Calculations:

Straight-line method:

($320,000 – $35,000) ÷ 4 = $71,250 each year

Units-of-activity method:

($320,000 – $35,000) ÷ 20,000 hours = $14.25 per hour

Year 1: 7,200 hours × $14.25 = $102,600

Year 2: 6,400 hours × $14.25 = $91,200

Year 3: 4,400 hours × $14.25 = $62,700

Year 4: 2,000 hours × $14.25 = $28,500

Double-declining-balance method:

Year 1: $320,000 × [(1 ÷ 4) × 2] = $160,000

Year 2: ($320,000 – $160,000) × [(1 ÷ 4) × 2] = $80,000

Year 3: ($320,000 – $160,000 – $80,000) × [(1 ÷ 4) × 2] = $40,000

Year 4: ($320,000 – $160,000 – $80,000 – $40,000 – $35,000) = $5,000

Note:  Book value should not be reduced below the residual value of $35,000.

2. The double-declining-balance method yields the most depreciation expense in 

Year 1 of $160,000.

3. Over the four-year life of the equipment, all three depreciation methods yield 

the same total depreciation, $285,000, which is the cost of the equipment of 

$320,000 less the residual value of $35,000.

Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life

Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3.

Instructions

1. Determine the amount of depreciation expense for the three years ending December 31 by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:

Depreciation Expense Year Straight- Line Method Units-of-Activity Method Double-Declining-Balance Method

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the three-year life of the equipment?

Answer:

1.

a. Straight- b. Units-of- c. Double-

Line Activity Declining-Balance

Year Method Method Method

Year 1 $22,500 $28,500 $48,000

Year 2 22,500 22,500 16,000

Year 3 22,500 16,500 3,500

Total $67,500 $67,500 $67,500

Calculations:

Straight-line method:

($72,000 – $4,500) ÷ 3 = $22,500 each year

Units-of-activity method:

($72,000 – $4,500) ÷ 18,000 hours = $3.75 per hour

Year 1: 7,600 hours × $3.75 = $28,500

Year 2: 6,000 hours × $3.75 = $22,500

Year 3: 4,400 hours × $3.75 = $16,500

Double-declining-balance method:

Year 1: $72,000 × (2 ÷ 3) = $48,000

Year 2: ($72,000 – $48,000) × (2 ÷ 3) = $16,000

Year 3: ($72,000 – $48,000 – $16,000 – $4,500) = $3,500

Note:  Book value should not be reduced below the residual value of $4,500.

2. The double-declining-balance method yields the most depreciation expense in 

Year 1 of $48,000.

3. Over the three-year life of the equipment, all three depreciation methods yield

the same total depreciation, $67,500, which is the cost of the equipment of 

$72,000 less the residual value of $4,500.

Selected accounts and related amounts for Clairemont Co. for the fiscal year ended May 31, 2019, are presented in Problem 6-5A.

Selected accounts and related amounts for Clairemont Co. for the fiscal year ended May 31, 2019, are presented in Problem 6-5A.

Instructions

1. Prepare a single-step income statement in the format shown in Exhibit 12.

2. Prepare closing entries as of May 31, 2019.

Answer:

1.

Sales$11,343,000

Expenses:

Cost of merchandise sold $7,850,000

Selling expenses1,644,000

Administrative expenses884,600

Interest expense21,000

Total expenses10,399,600

Net income$ 943,400

2.  2019

 May 31 Sales11,343,000

Cost of Merchandise Sold7,850,000

Sales Salaries Expense916,000

Advertising Expense550,000

Depreciation Expense—Store Equipment 140,000

Miscellaneous Selling Expense38,000

Office Salaries Expense650,000

Rent Expense94,000

Depreciation Expense—Office Equipment 50,000

Insurance Expense48,000

Office Supplies Expense28,100

Miscellaneous Administrative Expense 14,500

Interest Expense21,000

Kristina Marble, Capital943,400

31 Kristina Marble, Capital 100,000

Kristina Marble, Drawing100,000

On December 31, a business estimates depreciation on equipment used during the first year of operations to be $13,900.

On December 31, a business estimates depreciation on equipment used during the first year of operations to be $13,900.

a. Journalize the adjusting entry required as of December 31.

b. If the adjusting entry in (a) were omitted, which items would be erroneously stated on (1) the income statement for the year and (2) the balance sheet as of December 31?

Answers:

a.  Dec. 31 Depreciation Expense13,900

Accumulated Depreciation—Equipment 13,900

Depreciation on equipment.

b. (1) Depreciation expense would be understated. Net income would be 

overstated.

(2) Accumulated depreciation would be understated, and total assets would 

be overstated. Owner’s equity (owner’s capital account) would be overstated.