Equipment costing $86,000 was purchased by Spence, Inc., at the beginning of the

Question

Equipment costing $86,000 was purchased by Spence, Inc., at the beginning of the current year. The company will depreciate the equipment by the declining-balance method, but it has not determined whether the rate will be at 150 percent or 200 percent of the straight-line rate. The estimated useful life of the equipment is eight years.

Prepare a comparison of the two alternative rates for management for the first two years Spence owns the equipment. (Do not round your intermediate calculations. Round your answers to the nearest dollar amount.)

                                                                       Year 1                    Year 2

Double-Declining Balance Depriciation   ___________       ____________

150% Declining-Balance Depriciation _____________       ____________

Excess of Double Declining-Balance over 150% Declining- balance _________     __________

Explanation / Answer

Straight line depreciation = 86,000 / 8 = 10,750

Straight line rate = 10,750/86,000 = 12.50%

Double decline rate = 12.50 X 200% = 25%

150% Declining rate = 12.50 X 150% = 18.75%

Particuars Calculation Year 1 Calculation Year 2 Double-declining depreciation 86,000 X 25% 21,500 (86,000-21,500) X 25% 16,125 150% declining method 86,000 X 18.75% 16,125 (86,000-16,125) X 18.75% 13,102 Excess 5,375 3,023

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