On April 29, 2013, Quality Appliances purchased equipment for $299,000. The esti

Question

On April 29, 2013, Quality Appliances purchased equipment for $299,000. The estimated service life of the equipment is six years and the estimated residual value is $38,000. Quality's fiscal year ends on December 31.

Calculate depreciation for 2013 and 2014 using each of the three methods listed. Quality calculates partial year depreciation based on the number of months the asset is in service. (Do not round intermediate calculations.)

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Explanation / Answer

Depreciation using straight line method Depreciation = (Purchase cost - residual value) / useful life of the asset Depreciation = (299000-38000) / 6 Depreciation per year = $43500 Assume no.of days in a year = 365 days Hence depreciation per day = 43500/365 = $119 Depreciation for 2013 = 246 days * $119 = $29274 Depreciation for 2014 = $43500 Depreciation using sum of the years digits method Depreciation = {(No.of years of estimated life remaining at the beginning of the year / SYD) *100} * (Purchase cost - residual value) Estimated life = 6 years SYD = Sum of the years digit = n(n+1) / 2 n = no.of years SYD = 6(6+1) / 2 = 21 Depreciation for 2013 = (6/21) * (299000-38000) = 28.57% * 261000 = $74568 Depreciation for 2014 = (5/21) * (299000-38000) = 23.81% * 261000 = $62143 Depreciation using double declining balance method Depreciation = 2 * straight line depreciation rate * residual value of asset at the beginning Straight line depreciation rate = 100% for 6 years = 16.67% per year Depreciation for 2013 = 2 * 16.67% * 299000 = $99687 Depreciation for 2014 = 2 * 16.67% * 199313 = $66451

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