Accumulated depletion balance

1. Worth Company recently purchased an oil well for $3.5 million. This well is expected to produce 700,000 barrels of oil over its life. What is the depletion rate if Worth uses the units-of-production method?

2. If Worth Company produced 100,000 barrels of oil in its first year, what would be the accumulated depletion balance?

Worth Company recently purchased an oil well for $3.5 million. This well is expected to produce 700,000 barrels of oil over its life. What is the depletion rate if Worth uses the units-of-production method?

Baugh Travel, whose year-end is December 31, purchased $55,500 worth of office furniture on January 7, 2010. The company uses straight-line depreciation for financial statement purposes based on an estimated useful life of five years and a salvage value of $500. Baugh’s tax return preparer follows the MACRS rules for income tax purposes.

A. Calculate depreciation expense for financial statement purposes for each year of the asset’s life.

B. Why is it appropriate to use two different methods of depreciation for the same asset?

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