Blueprint Connection: Depreciation Methods Depreciation is the process of allocating the cost of an asset to expense over the asset's estimated useful life. The amount depreciated is the cost of the asset less the asset's expected residual value. depreciation method allocates larger amounts of depreciation expense to earlier periods of an asset's life and smaller amounts of depreciation expense to later periods of an asset's life. depreciation allocates an equal amount of the asset's cost to depreciation expense for each year of the asset's useful life. depreciation is used primarily to depreciate machinery and allocates costs based on the actual use of the machine to produce product. While these methods allocate a different amount of depreciation expense to each year of an asset's life, the total amount of depreciation expense recognized over the asset's life is the same under either method. Select the depreciation method that matches the depreciation formula. Depreciation Formula Depreciation Method (Cost - Residual Value) / Useful Life (1 / Useful Life) x 2 x Book Value (Cost - Residual Value) / Total Units of Production x Number of units produced in the period On January 1, 2014, Courier Inc. purchased new equipment that had a total cost (including shipping and installation) of $85,000. The equipment is expected to have a useful life of four years or produce a total of 125,000 units. At the end of its life, the equipment is expected to have a residual value of $4,800. The equipment is expected to produce 28,750 units in 2014; 32,500 units in 2015; 31,250 units in 2016; and 32,500 units in 2017. Courier Inc.'s fiscal year ends on December 31. In the table below, fill in the missing depreciation expense and accumulated depreciation amounts using the straight-line, double-declining-balance, and units-of-production methods. Do not round your intermediate calculation. When required, round your answers to the nearest dollar. Cost $85,000 Depreciation Expense Accumulated Depreciation Double- Declining- Balance Method Straight-line Method $ Unit-of- Production Method Straight-line Method Double- Declining- Balance Method Unit-of- Production Method Year 2014 $42,500 $18,446 $20,050 $42,500 $18,446 2015 $20,050 $ $20,852 $ $63,750 $39,298 2016 $20,050 $10,625 $ $60,150 $ $59,348 2017 $20,050 $5,825 $20,852 $80,200 $80,200 $ As new or additional information becomes available, a company will need to recalculate its depreciation expense based on current estimates of useful life and/or residual value and restate previously reported depreciation expense and reissue financial statements. revise current and future depreciation expense without restating previous financial statements
