Atlas Pressed Metals in Dubois, PA purchased new sintering equipment with an est
ID: 1109082 • Letter: A
Question
Atlas Pressed Metals in Dubois, PA purchased new sintering equipment with an estimated useful life of 9 years. Cost of the furniture was $50,000 and the salvage value was estimated to be $3500 at the end of its useful like.
a)For your company financial records, you use the double declining-balance depreciation method. What is the depreciation amount you would record in your company financial records for the 4th year of the asset’s life?
b) If instead you use the straight-line method of depreciation, what would be the depreciation amount you would record in you company financial records for the 4th year of the asset’s life? How much depreciation would you record in the 9th year of the asset’s life?
Explanation / Answer
Rate of depreciation:-
(a) Double declining-balance depreciation method
Under the double declining balance method, double means twice or 200% of the straight line depreciation rate. Declining balance refers to the asset's book value or carrying value at the beginning of the accounting period. Book value is an asset's cost minus its accumulated depreciation. The asset's book value will decrease when the contra asset account Accumulated Depreciation is credited with the depreciation expense of the accounting period.
Thus the rate of depreciation is 11.11*2=22.22
1st year:-
value of furniture is $50,000 - depreciation of furniture is $11,110= $38,890 value of furniture after depreciation.
2nd year:-
value of furniture is $38,890 - depreciation of furniture is $8,641.3= $30,248.7value of furniture after depreciation.
3rd year:-
value of furniture is $30,248.7 - depreciation of furniture is $6,721.26= $23,527.44 value of furniture after depreciation.
4th year:-
value of furniture is $23,527.44 - depreciation of furniture is $5,227.7= $18,299.74 value of furniture after depreciation.
(b)
1st year
value of furniture is $50,000 - depreciation of furniture is $5,555= $44,445 value of furniture after depreciation.
2nd year
value of furniture is $44,445 - depreciation of furniture is $5,555= $38,890 value of furniture after depreciation.
3rd year
value of furniture is $38,890 - depreciation of furniture is $5,555= $33,335 value of furniture after depreciation.
4th year
value of furniture is $33,335 - depreciation of furniture is $5,555= $27,780 value of furniture after depreciation.
5th year
value of furniture is $27,780 - depreciation of furniture is $5,555= $22,225 value of furniture after depreciation.
6th year
value of furniture is $22,225 - depreciation of furniture is $5,555= $16,670 value of furniture after depreciation.
7th year
value of furniture is $16,670 - depreciation of furniture is $5,555= $11,115 value of furniture after depreciation.
8th year
value of furniture is $11,115 - depreciation of furniture is $5,555= $5,560 value of furniture after depreciation.
9th year
value of furniture is $5,560 - depreciation of furniture is $5,560= $0 value of furniture after depreciation.
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