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October 1, 2014

Homework Help: business

Posted by suman on Tuesday, June 29, 2010 at 6:46pm.

The ABC Company purchased a solar powered electrical generator on March 9, 2005 for $1.5 million. At that time, it was estimated that the generator would have a useful life of 20 years and a salvage value of $50,000. Over its life span, it was estimated that the generator would produce 30M gigawatts of electricity. In the 2005 year, the generator produced 800,000 gigawatts; in the 2006 year – 1.2M gigawatts, and finally in the 2007 year – 1.0M gigawatts (i.e. 500,000 gigawatts up to July 17).

On July 17, 2007, during a management meeting, the senior engineer notified the Controller that there were actually 35 years of useful life remaining on the generator (or 35M gigawatts of electricity) now that a $300,000 retrofit had been completed. In addition, the engineer stated that the generator would likely have a salvage value of only $10,000. After further research, the Controller agreed with the engineer’s stated information and realized that a “change of accounting estimate”, in respect of the amortization expense, would be required.

ABC Company has a calendar year end. Use nearest whole month method.

Required:

Prepare a table showing Capital Cost, Accumulated Amortization, Net Book Value, and Amortization Expense for 2005, 2006, and 2007 using the following methods:

a) Straight line
b) Units of production
c) Double declining balance

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