PEI Productions Ltd. purchased equipment on February 1, 2012, for $50,000. The company estimated the equipment would have a useful life of three years and would produce 10,000 units, with a residual value of $10,000. During 2012, the equipment produced 4,000 units. On October 31, 2013, the machine was sold for $12,000; it had produced 5,000 units that year.
Instructions
(a) Record all the necessary entries for the years ended December 31, 2012 and 2013 for the following depreciation methods:
(1) Straight-line,
(2) Single diminishing-balance,
(3) Units-of-production.
(b) Prepare a schedule to show the overall impact of the total depreciation expense, combined with the gain or loss on sale for the two-year period, under each method of depreciation (consider the total effect on profit over the two-year period). Comment on your results.