Chapter 18 Problem 18-5
2008 Resource property 3,960,000
Cash 3,960,000
Building 960,000
Equipment 1,240,000
Cash 2,200,000
Depletion (12,000 x 32) 384,000
Accumulated depletion 384,000
Cost of resource property 3,960,000 Less: Residual value 120,000 Depletable cost 3,840,000
Divide by estimated output 120,000 Depletion rate per unit 32
Depreciation (12,000 x 8) 96,000
Accumulated depreciation – building 96,000
960,000
Depreciation rate per unit = ---------------- = 8
120,000
The output method is used in computing the depreciation of the building because the life of the resource property (5 years or 120,000 / 24,000) is shorter than the life of the building (8 years).
Depreciation 310,000
Accumulated depreciation 310,000
(1,240,000 / 4 years = 310,000)
The straight line method is used for the heavy equipment because the life of 4 years is shorter than the life of the resource property of 5 years.
2009 Depletion 800,000
Accumulated depletion (25,000 x 32) 800,000
Depreciation (25,000 x 8) 200,000
Accumulated depreciation – building 200,000
Depreciation 310,000
Accumulated depreciation – equipment 310,000
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