Assume That Alabama Company Purchased Factory Equipment on January 1,2017,for

question 73

Essay

Assume that Alabama Company purchased factory equipment on January 1,2017,for $75,000.The equipment has an estimated life of five years and an estimated residual value of $6,000.Alabama's accountant is considering whether to use the straight-line or the units-of-production method to depreciate the asset.Because the company is beginning a new production process,the equipment will be used to produce 5,000 units in 2017,but production subsequent to 2017 will increase by 5,000 units each year.
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Required
Calculate the depreciation expense,accumulated depreciation,and book value of the equipment under both methods for each of the five years of its life.Would the units-of production method yield reasonable results in this situation? Explain.

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Definitions:

Common Shares

Equity securities representing ownership in a company, giving holders voting rights and a share in the company's profits via dividends.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted for the investor’s share of the investee’s profit or loss.

Cost Method

An accounting method used to value an investment, wherein the investment is recorded at its acquisition cost without recognizing periodic income but dividends received are recorded as income.

NCI

An interest in a subsidiary not held by the controlling parent, representing a share of the subsidiary’s equity and profits or losses not owned by the parent company.