Question 13

Cullumber Company purchased equipment on March 27, 2018, at a cost of $328,000. Management is contemplating the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $8,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,600 units in 2018; 20,400 units in 2019; 20,000 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Cullumber has a December year end.

(b)

Compare the total depreciation expense and accumulated depreciation under each of the three methods over the life of the equipment. (Round answers to 0 decimal places, e.g. 5,275.)

		Straight-Line		Units-of-Production		Double-Diminishing-Balance
Total depreciation expense		$		$		$
Accumulated depreciation

Straight-line method: Year Depreciable Amount Depreciation Accumulated Expense Depreciation Carrying Amount 328000 268000 80000 T 188000 320,000 1 80000 108000 320,000 800001 300000 28000 320.000 20000 320000 8000 Double-diminishing-balance method: Opening Carrying Amount Year Depreciation Accumulated Expense Depreciation Carrying Amount 328000 2018 7 2019 328000 1 205000 123000 102500 51250 1 23000 2 25500 205000 102500 5000 102500 276750 51250 51250T 25625 302375 25625 2022 7 25625 1 17623 320,00 8000 Units-of-production method: Year Units-of-Production Depreciation Accumulated Expense Depreciation Carrying Amount J 328000 2018 14600 58400 58400 269600 2019 204001 81600 140000 T 188000 2020 20000 T 80000 T 220000 T 108000 2021 20000 80000 300000 28000 2022 5000T 20000 T 320000 8000