Computing Straight-Line and Double-Declining-Balance Depreciation On January 2,

Question

Computing Straight-Line and Double-Declining-Balance Depreciation
On January 2, Haskins Company purchases a laser cutting machine for use in fabrication of a part for one of its key products. The machine cost $65,000, and its estimated useful life is five years, after which the expected salvage value is $5,000. For both parts (a) and (b) below: (1) Compute depreciation expense for each year of the machine's five-year useful life under that depreciation method. (2) Use the financial statements effects template to show the effect of depreciation for the first year only for that method.

(a) Straight-line per year Use negative signs with answers below, when appropriate. Balance Sheet Earned +Capital Noncash Contributed Transaction Cash AssetAssetsLiabilitiesCapital Record first ear depreciation Income Statement Net Revenue -Expenses - Income

Explanation / Answer

1. a) straight line depreciation per year = [cost - salvage vaue] / useful life

= [$65,000 - $5,000] / 5

= [$60000 / 5]

= $12000

b)   

c.

2. a) Year Beginning value Dep. rate Depreciation expense Ending value

1 65000 40% 26000 39000

2 39000 40% 15600 23400

3 23400 40% 9360 14040

4 14040 40% 5616 8424

5 8424 40% 3424 5,000

Note:- Double declining rate = 1/useful life * 200%

   = 1/5 * 200%

= 40%

b)   

c.

Cash Non cash assets = liabilities Contributed capital Earned capital Record first year Dep. 0 ($12000) = 0 0 ($12000)

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