Norwalk Hospital bought a new state of the art x-ray machine at the beginning of the year at a cost of $140,000. Transportation and installation costs to get the machine delivered and functioning in the hospital’s radiology department amounted to $20,000. The equipment’s estimated useful life is 3 years and the residual or salvage value is $10,000.
#1.
a.) Straight-Line Method (24 points)
Using the Straight Line Method, calculate the Depreciation Expense and Book Value of the x-ray machine that would be recorded at the end of each of the 3 years of its useful life. Provide your answers and show your work in the table below.
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Year |
Annual Depreciation Computation |
Annual Depreciation Expense |
Accumulated Depreciation |
Book Value |
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b.) Double Declining Balance Method (24 points)
Using the Double Declining Balance Method, calculate the Depreciation Expense and Book Value of the x-ray machine that would be recorded at the end of each of the 3 years of its useful life. Provide your answers and show your work in the table below.
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Year |
Annual Depreciation Computation |
Annual Depreciation Expense |
Accumulated Depreciation |
Book Value |
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1 |
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c.) Units of Production Method (24 points)
Using the Units of Production Method, calculate the Depreciation Expense and Book Value of the x-ray machine that would be recorded in each of the 3 years of its useful life.
The estimated x-rays expected from the equipment over its useful life is 30,000.
The actual number of x-rays expected each year is:
Year 1 5,000 units
Year 2 15,000 units
Year 3 10,000 units
Provide your answers and show your work in the table below.
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Year |
Annual Depreciation Computation |
Annual Depreciation Expense |
Accumulated Depreciation |
Book Value |
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1 |
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#2. (14 points)
Using which of these three depreciation methods will the hospital show the largest net income (profit) on their income statement for the second year (only for year #2, not years 1 and 2 combined).
#3. (14 points)
Calculate the gain or loss for all of the 3 depreciation methods if the hospital sells the x-ray machine at the end of the second year for $65,000. (Show your 3 answers and calculations below.)
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