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Chapter 11: Q11-2BE (page 584)

Lockard Company purchased machinery on January 1, 2017, for \(80,000. The machinery is estimated to have a salvage value of \)8,000 after a useful life of 8 years. (a) Compute 2017 depreciation expense using the straight-line method. (b) Compute 2017 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2017.

Short Answer

Expert verified

Answer

  1. Depreciation expense = $9,000.
  2. Depreciation expense = $3,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Straight-Line Depreciation

Straight-line depreciation is the simplest way to calculate depreciation expense. There is uniform depreciation from year to year and it recognizes less depreciationat the beginning compared to other depreciation methods.

02

(a) Computing depreciation for 2017

顿别辫谤别肠颈补迟颈辞苍鈥塭虫辫别苍蝉别=颁辞蝉迟鈥塷蹿鈥塧蝉蝉别迟鈭�厂补濒惫补驳别鈥塿补濒耻别鲍蝉别蹿耻濒鈥塴颈蹿别=$80,000鈭�$8,0008=$9,000

03

(b) Computing depreciation for 2017

顿别辫谤别肠颈补迟颈辞苍鈥塭虫辫别苍蝉别=颁辞蝉迟鈥塷蹿鈥塧蝉蝉别迟鈭�厂补濒惫补驳别鈥塿补濒耻别鲍蝉别蹿耻濒鈥塴颈蹿别脳狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑惭辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$80,000鈭�$8,0008脳412=$3,000

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Most popular questions from this chapter

Neither depreciation on replacement cost nor depreciation adjusted for changes in the purchasing power of the dollar has been recognized as generally accepted accounting principles for inclusion in the primary financial statements. Briefly present the accounting treatment that might be used to assist in the maintenance of the ability of a company to replace its productive capacity.

(Ratio Analysis) The 2014 annual report of Tootsie Roll Industries contains the following information.

(in millions)

December 31, 2014

December 31, 2013

Total assets

\(910.4

\)888.4

Total liabilities

219.3

208.1

Net sales

539.9

539.6

Net income

63.2

60.8

Instructions

Compute the following ratios for Tootsie Roll for 2014.

  1. Asset turnover.
  2. Return on assets.
  3. Profit margin on sales.
  4. How can the asset turnover be used to compute the return on assets?

What basic questions must be answered before the amount of the depreciation charge can be computed?

Explain how gains or losses on impaired assets should be reported in income.

(Unit, Group, and Composite Depreciation) The certified public accountant is frequently called upon by management for advice regarding methods of computing depreciation. Of comparable importance, although it arises less frequently, is the question of whether the depreciation method should be based on consideration of the assets as units, as a group, or as having a composite life.

Instructions

  1. Briefly describe the depreciation methods based on treating assets as

(1) units and

(2) a group or as having a composite life.

  1. Present the arguments for and against the use of each of the two methods.
  2. Describe how retirements are recorded under each of the two methods.
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