At the beginning of 2016, Copland Drugstore purchased a new computer system for

Question

At the beginning of 2016, Copland Drugstore purchased a new computer system for 260,000. It is expected to have a five-year life and a $40,000 salvage value.

Record depreciation expense for year 1, 2, 3, 4, 5.

At the beginning of 2016, Copland Drugstore purchased a new computer system for 260,000. It is expected to have a five-year life and a $40,000 salvage value.

Required a. Compute the depreciation for each of the five years, assuming that the company uses (1) Straight-line depreciation. Straight-line depreciation (2) Double-declining-balance depreciation. Double- Declining Year 1 Year 2 Year 3 Year 4 Year 5

Explanation / Answer

Answer a-1. Straight Line Method Depreciation per annum = (Cost - Salvage Value) / Life of Asset Depreciation per annum = ($260,000 - $40,000) / 5 Years Depreciation per annum = $44,000 Answer a-2. Double Declining Balance Method Rate of Dep. Under DDBM = 2 X Rate Under Straight Line Method Rate of Dep. Under DDBM = 2 X 20% = 40% Year Book Value Beginning Depreciation Accumulated depreciation Book Value Ending 0                           -                                  -                               -            260,000 1                260,000                    104,000                 104,000          156,000 2                156,000                      62,400                 166,400            93,600 3                  93,600                      37,440                 203,840            56,160 4                  56,160                      22,464                 226,304            33,696 5                  33,696                      13,478                 239,782            20,218 Answer b. COPELAND DRUGSTORE Statements Model Balance Sheet Income Statement Cash Flow Assets = Equity Revenue - Expense = Net Income Cash + Book Value of Comp. Sys. = Retained Earnings (260,000.00) +               260,000.00 =                      -                          -   -                       -   =                             -   (260,000.00) Investing Straight-Line Depreciation                       -   +               (44,000.00) =     (44,000.00)                        -   -       44,000.00 =           (44,000.00)                       -   DDBM                       -   +             (104,000.00) = (104,000.00) -     104,000.00 =         (104,000.00)                       -   Answer c-1. Straight Line Method Journal Entry Date Particulars Dr. Amt. Cr. Amt. Yr-1 Depreciation Expense            44,000 to Accumulated Depreciation - Equipment            44,000 Yr-5 (To Record the depreciation expense) Answer c-2. DDBM Journal Entry Date Particulars Dr. Amt. Cr. Amt. Yr-1 Depreciation Expense          104,000 Accumulated Depreciation - Equipment          104,000 (To Record the depreciation expense) Yr-2 Depreciation Expense            62,400 Accumulated Depreciation - Equipment            62,400 (To Record the depreciation expense) Yr-3 Depreciation Expense            37,440 Accumulated Depreciation - Equipment            37,440 (To Record the depreciation expense) Yr-4 Depreciation Expense            22,464 Accumulated Depreciation - Equipment            22,464 (To Record the depreciation expense) Yr-5 Depreciation Expense            13,478 Accumulated Depreciation - Equipment            13,478 (To Record the depreciation expense)

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