On 11/1/X1 JacobCo Inc. hired an external engineering firm todesign a new production line to produce a new fishing lure productline. The design of the new production line was completed on11/28/X1 and JacobCo. Inc. received an invoice from the engineeringfirm in amount of $225,000. Construction started on a newproduction line on 12/8/X1 and was completed on 12/31/X1. The totalconstruction cost of the new production line was $895,000. Interestexpense from 11/1/X1 when the project was started to 12/31/X1 whenit was completed amounted to $43,000 in total. Of that totalinterest expense $4,200 was attributable to the new productionline.
The production line had an estimated engineering physical lifeof eight years. It is estimated that the production line could bescrapped and have a salvage value of approximately $30,000 at theend of that time.
The marketing department estimated that the new fishing lureproduct line would provide revenues to JacobCo. Inc. for the nextfive years. At the end of that time period the fishing lure productline will be discontinued and the production line will be scrappedand will sold for $10,000. The marketing department also estimatesthat the total number of fishing lures that will be sold over thenext five years will be 500,000 units. The production line startedinto operation on 1/1/X2.
Required: Calculate depreciation for 12/31/X2 and 12/31/X3 andmake the required journal entries using :
A. Straight line depreciation.
B. 200% double declining balance.
C. Units of Production assuming that102,500 lures were produced in the year ending 12/31/X2 and 91,000lures were produced in the year ending 12/31/X3.
