E11-1 E11-3
a. C
a. Depreciable cost: $1,000 = $.01 per unit produced
b. E
c. C Expected output 100,000 units
d. E Year 1 40,000 * $.01 = $400
e. C Year 2 25,000 * $.01 = 250
f. C Year 3 20,000 * $.01 = 200
g. E Year 4 15,000 * $.01 = 150
h. E TOTAL $1,000
i. C b. Depreciation is based on estimates made at the beginning of the asset’s
useful life. Most likely, the company would depreciate the asset based on its
original estimates. Another option would be to change the depreciation after the
first year to reflect the new estimates. In that case, the company would depreci-
ate the remaining book value over the remaining estimated production.
j. C
k. E
l. C
Year 1 50,000 × $.01 = $500
E11-2 Remaining book value – Estimated salvage value /Estimated remaining production
a. (Cost – Salvage) / Useful life = ($1,200 – $200)/4= $250 per year ($700 – 200) / 900 = $.00555 per unit
Year 2 40,000 × $.00555 = $222
Straight-line percentage = 1/4 = 25% Year 3 30,000 × $.00555 = 167
b. 1 + 2 + 3 + 4 = 10 Year 4 20,000 × $.00555 = 111
Depreciation Depreciable Depreciation Total Depreciation $1,000
Year Digit rate cost Expense
1 1 4/10 $1,000 $400
2 2 3/10 $1,000 300 E11-4
3 3 2/10 $1,000 200 Depreciable cost = Cost – Salvage value $50,000 – $5,000 = $45,000
4 4 1/10 $1,000 100 Straight-line percentage = 1/10 = 10%
Sum 10 1 $1,000 Annual depreciation = $45,000 × 10% = $4,500
Total accumulated depreciation on the date of sale = $4,500 × 3 = $13,500
c. Remaining Declining Declining Balance Book Value on date of sale = Cost – total accumulated depreciation = $50,000 –
$13,500 = $36,500
Year Book Value Balance Rate Depreciation
1 $1,200 2 × 25% = 50% $600
2 600 50% 300 a. Sold for book value—No gain or loss recognized
3 300 N/A** 100 Cash 36,500
Sum 200 $1,000 Accumulated depreciation 13,500
** Since using the 50% depreciation rate would result in $150 of deprecia-
tion, resulting in more depreciation than allowed over the asset’s life, the formula
is ignored. Enough depreciation is taken in year 3 so that the book value of the
asset will equal its estimated salvage value of $200. Another option would be for
the company to spread the remaining depreciation over 2 years, switching to
straight-line depreciation for years 3 and 4 (taking $50 each year).
Equipment 50,000
b. Sold for less than book value Book value $36,500
Sale price 20,000
Loss $16,500
Cash 20,000
Accumulated depreciation 13,500
Loss on sale of equipment 16,500
Equipment 50,000
c. Sold for more than book value Sale price 41,000
1 11-Long-Lived-Assets-Exercises
