Section 4 Quiz 1 The Units of Production Method of Depreciation

Total depreciation over an asset's life is the same under units of production or straight-line depreciation.

true

Units of production depreciation is base on how much an asset is used, regardless of how long it is owned.

true

At the beginning of the year, Middlestate Farmers Cooperative, which processes and packs carrots for members, purchases for $8,500 a new conveyer that it will depreciate under the units of production method. The equipment is expected to process 60,000 pounds of carrots and have a residual value of $1,000. If this were Middlestate's only asset, what adjusting journal entry would it record at the end of the first year?

Inventory -Work-In-Process OH 2,250 ------Accumulated Depreciation-Equipment 2,250 Because the conveyer belt is used only for the production of inventory, 100% of annual depreciation must be allocated to Inventory-Work-In-Process OH rather than to Depreciation Expense.

Manufacture Inc. Which uses units of production depreciation, shows the following data for three pieces of equipment used in production: Equipment/ Acquisition Cost/ Residual value/ Estimated life Forklift / $35,000 / $ 0 / 140,000 miles Lathe / 17,000 / 2,000 / 15,000 machine hours Oven / 8,500 / 500 / 400,000 units of output If the forklift is driven 13,200 miles during 20x1, compute first-year depreciation and show the adjusting entry to record depreciation .

The first step is to compute the depreciation rate: $35,000 cost - $0 residual value = $35,000 depreciable base $35,000 depreciable base / 140,000 miles (estimated life) = $0.25 (per mile) depreciation rate Once the depreciation rate is computed, you can determine first-year depreciation: 13,200 miles driven during 20x1 x $0.25 depreciation rate = $3,300 first-year depreciation To record first-year depreciation expense: Inventory-Work-In-Process OH 3,300 -----Accumulated Depreciation-Equipment 3,300

On January1, 20x1, Textiles, Inc., a manufacturer that uses units of production depreciation, purchases for $14,000 a machine that will produce 16,000 yards of fabric over its life and that will end up with residual value of $2,000. Use the following data to complete the table below. Then answer the questions below the table. Year-----Yards produced 20x1-----3,500 20x2-----3,428 20x3-----3,212 20x4-----2,948 How many more yards of cloth can the machine produce after 12/31/x4 before it is fully depreciated?

To complete the table, you need to compute the depreciation rate and the depreciation for each year. To compute the depreciation rate: $14,000 cost - $2,000 residual value = $12,000 depreciable base / 16,000 yards = $0.75 depreciation rate. After 12/31/x4, the machine can produce 2,912 yards of cloth before it is fully depreciated ($2,184 remaining depreciation /$0.75 depreciation rate = 2,912)

On January1, 20x1, Textiles, Inc., a manufacturer that uses units of production depreciation, purchases for $14,000 a machine that will produce 16,000 yards of fabric over its life and that will end up with residual value of $2,000. Use the following data to complete the table below. Then answer the questions below the table. Year-----Yards produced 20x1-----3,500 20x2-----3,428 20x3-----3,212 20x4-----2,948 How much depreciation can Textiles, Inc. take in 20x5 and subsequent years?

To complete the table, you need to compute the depreciation rate and the depreciation for each year. To compute the depreciation rate: $14,000 cost - $2,000 residual value = $12,000 depreciable base / 16,000 yards = $0.75 depreciation rate. In 20x5 and subsequent years, Textiles, Inc. can still take $2,184 in depreciation. To compute: $12,000 depreciable base - $9,816 total depreciation (year-end balance in Accumulated Depreciation) taken through 12/31 = $2,184

On January1, 20x1, Textiles, Inc., a manufacturer that uses units of production depreciation, purchases for $14,000 a machine that will produce 16,000 yards of fabric over its life and that will end up with residual value of $2,000. Use the following data to complete the table below. Then answer the questions below the table. Year-----Yards produced 20x1-----3,500 20x2-----3,428 20x3-----3,212 20x4-----2,948 What is the book value as of 12/31/x4?

To complete the table, you need to compute the depreciation rate and the depreciation for each year. To compute the depreciation rate: $14,000 cost - $2,000 residual value = $12,000 depreciable base / 16,000 yards = $0.75 depreciation rate. The book value as of 12/31/x4 is $4,184

At the beginning of the year, Middlestate Farmers Cooperative, which processes and packs carrots for members, purchases for $8,500 a new conveyer that it will depreciate under the units of production method. The equipment is expected to process 60,000 pounds of carrots and have a residual value of $1,000. If Middlestate processes 18,000 pounds of carrots in the first year, what is first-year depreciation?

To compute first-year depreciation under units of production depreciation if 18,000 pounds of carrots are processed: 18,000 lbs. x $0.125 depreciation rate = $2,250 depreciation for the first year

Manufacture Inc. Which uses units of production depreciation, shows the following data for three pieces of equipment used in production: Equipment/ Acquisition Cost/ Residual value/ Estimated life Forklift / $35,000 / $ 0 / 140,000 miles Lathe / 17,000 / 2,000 / 15,000 machine hours Oven / 8,500 / 500 / 400,000 units of output If the lathe is used 3,000 machine hours in 20x1, compute first-year depreciation and show the adjusting entry to record depreciation.

To compute the depreciable base for the lathe: $17,000 cost - $2,000 residual value = $15,000 depreciable base $15,000 depreciable base / 15,000 hours (estimated life) = $1 (per machine hour) depreciation rate To determine first-year depreciation: 3,000 hours x $1 depreciation rate = $3,000 depreciation To record depreciation expense for the first year: Inventory- Work-In-Process OH 3,000 ---- Accumulated Depreciation -- Equipment 3,000

Manufacture Inc. Which uses units of production depreciation, shows the following data for three pieces of equipment used in production: Equipment/ Acquisition Cost/ Residual value/ Estimated life Forklift / $35,000 / $ 0 / 140,000 miles Lathe / 17,000 / 2,000 / 15,000 machine hours Oven / 8,500 / 500 / 400,000 units of output If the oven produces 85,000 units during 20x1, compute Manufacture Inc. Which uses units of production depreciation, shows the following data for three pieces of equipment used in production:

To compute the depreciation rate: $8,500 cost - $500 residual value = $8,000 depreciable base $8,000 depreciable base / 400,000 items output (estimated life) = $0.02 (per item) depreciation rate To compute first-year depreciation: 85,000 items X $0.02 depreciation rate = $1,700 first-year depreciation To record first-year depreciation: Inventory-Work-In-Process OH 1,700 -----Accumulated Depreciation-Equipment 1,700

The units of production method produces the same annual depreciation each year.

false The amount of depreciation varies with the asset's usage.

Under units of production depreciation, an asset's use can be measured in hours or years.

false The depreciation rate can be measured in hours of use, but not in years (because years represent length of ownership rather than usage).

On January 1, 20x1, Myrtle's Tree Service acquires a new truck for $80,000. Taxes, title and delivery charges are $6,000. The truck is expected to be driven 172,000 miles over its life and will have no residual value at that point. Show annual depreciation and the balance in Accumulated Depreciation for: 1. 20x1 when the truck is driven 18,000 miles. 2. 20x2 when the truck is driven 20,000 miles.

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At the beginning of the year, Middlestate Farmers Cooperative, which processes and packs carrots for members, purchases for $8,500 a new conveyer that it will depreciate under the units of production method. The equipment is expected to process 60,000 pounds of carrots and have a residual value of $1,000. What is the depreciation rate?

to compute the depreciation rate for the equipment based on pounds of carrots processed: 7,500 depreciable base -------------------------- 60,000 lbs. (estimated life) = $0.125 (per pound of carrots processed) depreciation rate 8,500 cost - 1,000 residual value = 7,500 depreciable base

In units of production, the depreciation rate remains unchanged throughout the asset's life.

true