Exercise 1: Depreciation Methods

On January 7, 2017, Barker Company purchased equipment for $350,000. Estimated residual value at the end of an estimated six-year service life is $50,000. The company expects to produce 600,000 units with the machine. Production for the machine is as follows:

2017 115,000 units

2018 110,000 units

2019 115,000 units

2020 105,000 units

2021 90,000 units

2022 80,000 units

Required: Prepare a depreciation schedule for 2017 2022 for the machine using each of the four depreciation methods listed below (one on each page of this document). Round answers to the nearest whole dollar.

(1) Straight-line:

Depreciation per year = (cost salvage) / total estimated useful life in years (EUL)

Year	Calculation	Depreciation Expense	Accumulated Depreciation	Book Value (Cost Acc. Depr.)

Financial statement presentation:

1. What will Barker report on its income statement for the year ended December 31, 2018 related to this equipment?

Operating Expenses:

Depreciation expense $______________

2. What will Barker report on its balance sheet dated December 31, 2018 related to this equipment?

Property, Plant and Equipment:

Equipment, net of accumulated depreciation

of $_______________ $______________

(2) Sum-of-the-years-digits:

Depreciation per year = (cost salvage) x # of years of EUL remaining from beginning of year

Sum of the years digits

Year	Calculation	Depreciation Expense	Accumulated Depreciation	Book Value (Cost Acc. Depr.)

Financial statement presentation:

1. What will Barker report on its income statement for the year ended December 31, 2018 related to this equipment?

Operating Expenses:

Depreciation expense $______________

2. What will Barker report on its balance sheet dated December 31, 2018 related to this equipment?

Property, Plant and Equipment:

Equipment, net of accumulated depreciation

of $_______________ $______________

) Double-declining balance:

Depreciation per year = Book value x 2 / EUL

) Activity (units of production):

Depreciation per unit = (cost salvage) / total estimated units

Depreciation per period = depreciation per unit x actual units for period