Graham Manufacturing Company purchased a piece of equipment for $1,520,000 at the beginning of 2012.The equipment has an estimated useful life of four years and an estimated residual value of $150,000.The equipment should last 20,000 hours, was operated 4,000 hours in 2012; 8,000 hours in 2013; 5,000 hours in 2014; and 3,000 hours in 2015.
1) Compute the annual depreciation and carrying value for the equipment for each year assuming the following depreciation methods
(a) straight-line,
(b) production, and
(c) double-declining balance.
2) Prepare the adjusting entry that would be made in 2014 to record the depreciation calculated under the double-declining balance method.
3) Show the balance sheet presentation for the equipment after the adjusting entry in 2014 using the double-declining balance method.
4) Discuss the patterns of yearly depreciation and carrying value for each of the methods used. Include in your discussion the rationale supporting the use of each of the particular methods.