Problem:
Snappy Supply Inc. has purchased several expensive machines for the express purpose of manufacturing nano-chip products. Snappy Supply is a January 1 to December 31 calendar year company so please keep this in mind as you proceed through this problem.
1] Equipment #1: Purchased on January 1, 2013 for $500,000 a machine which is estimated to have $50,000 residual value with a 5 year useful life. Using Double Declining Balance method of depreciation what would the depreciation expense be in the first two full years of operation?
2] Equipment #2: Purchased on July 1, 2013 for $400,000 a machine with no residual value and an estimated useful life of 10 years. Using the Sum-of-the-Digits method what would be the depreciation expense in the year 2013 for this equipment?
3] Based on the information provided in question [2] what would be the depreciation expense for this equipment in the year 2014?
4] Equipment #3: Purchased a stamping machine which is estimated to have 500,000 hours of operation before the need for major repairs. This equipment had a cost of $80,000 with $20,000 in training costs before the machine could be used by current employees. No salvage is estimated for this piece of equipment, however in 2013 Snappy estimates it will use this equipment for 100,000 hours during its useful life. Snappy only used this equipment for 2,000 hours in 2013. If this is true then what is the depreciation expense in 2013 for Snappy for this piece of equipment?
5] What would be the journal entry in question [4] above if Snappy decided to sell Equipment #3 on January 1, 2014 for $75,000 in cash?
Additional information:
The question is from Finance and it discusses about a company which has bought various expensive machines for manufacturing nano-chip products. Various questions about the depreciation of such machines has to be done and the solution has all the calculations.