On January 2, 2018, Jatson Corporation acquired a new machine with an estimated

Question

On January 2, 2018, Jatson Corporation acquired a new machine with an estimated useful life of five years. The cost of the equipment was $60,000 with an estimated residual value of $5,000.

a-1. Prepare a complete depreciation table under the straight-line method. Assume that a full year of depreciation was taken in 2018.

a-2. Prepare a complete depreciation table under the 200 percent declining-balance method. Assume that a full year of depreciation was taken in 2018.

a-3. Prepare a complete depreciation table under the 150 percent declining-balance with a switch to straight-line when it will maximize depreciation expense. Assume that a full year of depreciation was taken in 2018.

Explanation / Answer

a-1) Annual depreciation exp = (Cost - Salvage Value)/Useful Life

= ($60,000 - $5,000)/5 yrs

= $55,000/5 yrs = $11,000 per year

Depreciation Table (Amounts in $)

a-2) Depreciation rate under 200 declining balance method = (1/Useful life)*200%

= (1/5 yrs)*200% = 0.40 or 40%

Depreciation Table (Amounts in $)

a-3) Depreciation rate under 150 declining balance method = (1/Useful life)*150%

= (1/5 yrs)*150% = 0.30 or 30%

Depreciation Table (Amounts in $)

**Switch to straight line in 2021 = (Book Value at the beg of 2021 - Salvage Value)/Remaining useful life

= ($20,580 - $5,000)/2 yrs = $7,790 per year

Year Beginning Balance (A) Depreciation Exp (B) Accumulated Depreciation Ending Balance (A-B) 2018 60,000 11,000 11,000 49,000 2019 49,000 11,000 22,000 38,000 2020 38,000 11,000 33,000 27,000 2021 27,000 11,000 44,000 16,000 2022 16,000 11,000 55,000 5,000

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