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The Wise Learning Corporation purchased equipment on 1 February, 2019, for $100,000
The Wise Learning Corporation purchased equipment on 1 February, 2019, for $100,000. It is estimated that the equipment will have a $10,000 residual value at the end of its 6-year useful life. It is also estimated that the equipment will produce 100,000 units over its 6-year life. The reporting period ends on 30 June. Ignore GST.
Required:
Answer the following independent questions.
1) If 8,000 units of product are produced in the financial year ended 30 June 2019. Prepare the journal entry to record depreciation expense for the year ended 30 June 2019. The company uses the units-of-production depreciation method.
Expert Solution
First we calculate Depreciation Rate using Units-of-Production Method:
Depreciation Rate = (Cost of Equipment - Residual Value)/Estimated Production
= ($100,000-$10,000)/100,000
= $90,000/$100,000
Depreciation Rate = $0.90 per unit
Depreciation for the Year June 30, 2019 = $0.90*8,000 = $7,200
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