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On January 3, 2020, Xenex Innovations purchased computer equipment for $135,250
On January 3, 2020, Xenex Innovations purchased computer equipment for $135,250. The equipment will be used in research and development activities for five years or a total of 9,300 hours and then sold for about $19,000.
Assume actual usage in hours of:
2020 2021 2022 2023 2024 1,600 1,830 2,900 3,030 3,200
Required:
Calculate depreciation expense and book values for each year of the equipment's life for each method of depreciation using the table provided below. Xenex's year-end is December 31. (Do not round intermediate calculations.)
Analysis Component:
Which method will result in the greatest:
a. Total assets being reported on the balance sheet in 2020? in 2023?
b. Operating expenses being reported on the income statement in 2020? in 2023?
Expert Solution
1)
| Straight-Line Depreciation Schedule | ||||||||
| Depreciation for the Year | ||||||||
| Asset | Depreciable | Useful Life | Depreciation | Accumulated | Book | |||
| Date | Cost | Cost | Expense | Depreciation | Value | |||
| 01/03/2020 | 135250 | |||||||
| 12/31/2020 | 116250 | / | 5 | = | 23250 | 23250 | 112000 | |
| 12/31/2021 | 116250 | / | 5 | = | 23250 | 46500 | 88750 | |
| 12/31/2022 | 116250 | / | 5 | = | 23250 | 69750 | 65500 | |
| 12/31/2023 | 116250 | / | 5 | = | 23250 | 93000 | 42250 | |
| 12/31/2024 | 116250 | / | 5 | = | 23250 | 116250 | 19000 | |
| Depreciable cost =135250-19000=116250 | ||||||||
| Units-of-Production Depreciation Schedule: | ||||||||
| Depreciation for the Year | ||||||||
| Asset | Depreciation | Number of | Depreciation | Accumulated | Book | |||
| Date | Cost | Per Unit | Mileage | Expense | Depreciation | Value | ||
| 01-03-2020 | 135250 | |||||||
| 12/31/2020 | 12.5 | * | 1600 | = | 20000 | 20000 | 115250 | |
| 12/31/2021 | 12.5 | * | 1830 | = | 22875 | 42875 | 92375 | |
| 12/31/2022 | 12.5 | * | 2900 | = | 36250 | 79125 | 56125 | |
| 12/31/2023 | = | 37125 | 116250 | 19000 | ||||
| 12/31/2024 | = | - | 116250 | 19000 | ||||
| Depreciation per Unit = (Original Cost- Salvage Value)/ Estimated Life | ||||||||
| =(135250-19000)/9300 Hour=$12.5 |
| Double-Declining-Balance Depreciation Schedule | ||||||||
| Depreciation for the Year | ||||||||
| Asset | Book | DDB | Depreciation | Accumulated | Book | |||
| Date | Cost | Value | Rate | Expense | Depreciation | Value | ||
| 01-01-2020 | 135250 | |||||||
| 12/31/2020 | 135250 | * | 40% | = | 54100 | 54100 | 81150 | |
| 12/31/2021 | 81150 | * | 40% | = | 32460 | 86560 | 48690 | |
| 12/31/2022 | 48690 | * | 40% | = | 19476 | 106036 | 29214 | |
| 12/31/2023 | 29214 | * | 40% | = | 10214 | 116250 | 19000 | |
| 12/31/2024 | * | = | 19000 | |||||
| DDB Rate= 1/ Estimated Life * 2= 1/5*2= 40% | ||||||||
| (29214-19000)=10214 |
2)
|
Part-a |
|
Total assets being reported on the balance sheet in 2020 and 2023: |
|
2020 - Units of Production Method |
|
2023 - Straight line Depreciation Method |
|
Part-b |
|
Operating expenses being reported on the income statement in 2020 and 2023: |
|
2020 - Double Declining Balance Method |
|
2023 - Units of Production Method |
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