Crispy Fried Chicken bought equipment on January 2, 2016, for $ 18 comma 000. The equipment was expected to remain in service for four years and to perform 3 comma 000 fry jobs. At the end of the equipment's useful life, Crispy estimates that its residual value will be $ 3 comma 000. The equipment performed 300 jobs the first year, 900 the second year, 1 comma 200 the third year, and 600 the fourth year. Requirements 1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the equipment under the three depreciation methods. Show your computations. Note: Three depreciation schedules must be prepared. 2. Which method tracks the wear and tear on the equipment most closely?

Please check the attached image for the depreciation schedule

2. Units of production method

Explanation:

Book value in year 1 = Cost of asset - Depreciation expense of year 1

Book value in year in subsequent years = previous book value - that year's depreciation expense

Accumulated depreciation is sum of deprecation expense

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

($18,000 - $3,000) / 4 = $3,750

Depreciation expense each year of the useful life is $3,750

Depreciation expense using the double declining method = Depreciation factor x cost of the asset

Deprecation factor = 2 x (1/useful life) = 0.5

Depreciation expense in year 1 = 0.5 x $18,000 = $9,000

Book value = $18,000 - $9,000 = $9,000

Depreciation expense in year 2 = 0.5 × $9,000 = $4,500

Book value = $9,000 - $4,500 = $4,500

Depreciation expense in year 3 = 0.5 x $4,500 = $2250

Book value = $4,500 - $2250 = $2250

Depreciation expense in year 4 = 0.5 × $2250 = $1125

Depreciation expense using the unit of production method =( Total production in the year/ total productive capacity) × (cost of asset - Salvage value)

Depreciation expense in year 1 = ($18,000 - $3,000) x (300 / 3000) = $1,500

Depreciation expense in year 2 =18,000 - $3,000) x (900 / 3000) = $4,500

Depreciation expense in year 3 = (18,000 - $3,000) x (1200 / 3000) = $6,000

Depreciation expense in year 3 = (18,000 - $3,000) x (600 / 3000) = $3,000

The Units of production method tracks wear and tear accurately because deprecation depends on the production each year.

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