On January 2, 2018, the Jackson Company purchased equipment to be used in its ma
ID: 2436178 • Letter: O
Question
On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $61,500. The expenditures made to acquire the asset were as follows: Purchase price $ 258,500 Freight charges 9,600 Installation charges 13,500 Jackson’s policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’s life and then switch to straight line halfway through the equipment’s life. Required: 1. Calculate depreciation for each year of the asset’s eight-year life.
Explanation / Answer
Double Declining Method
A
Cost
$ 281,600.00
B
Residual Value
$ 61,500.00
C=A - B
Depreciable base
$ 220,100.00
D
Life [in years]
8
E=C/D
Annual SLM depreciation
$ 27,512.50
F=E/C
SLM Rate
12.50%
G=F x 2
DDB Rate
25.00%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 281,600.00
25.00%
70400.00
$ 211,200.00
$ 70,400.00
2
$ 211,200.00
25.00%
52800.00
$ 158,400.00
$ 123,200.00
3
$ 158,400.00
25.00%
39600.00
$ 118,800.00
$ 162,800.00
4
$ 118,800.00
25.00%
29700.00
$ 89,100.00
$ 192,500.00
A
Written Down Value
$ 89,100.00
B
Residual Value
$ 61,500.00
C=A - B
Depreciable base
$ 27,600.00
D
Life [in years Left]
4
E=C/D
Annual SLM depreciation
$ 6,900.00
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
5
$ 89,100.00
$ 6,900.00
$ 82,200.00
$ 6,900.00
6
$ 82,200.00
$ 6,900.00
$ 75,300.00
$ 13,800.00
7
$ 75,300.00
$ 6,900.00
$ 68,400.00
$ 20,700.00
8
$ 68,400.00
$ 6,900.00
$ 61,500.00
$ 27,600.00
Depreciation method
Year
Depreciation Amount
Double Declining Method
1
$ 70,400.00
2
$ 52,800.00
3
$ 39,600.00
4
$ 29,700.00
Straight line Method
5
$ 6,900.00
6
$ 6,900.00
7
$ 6,900.00
8
$ 6,900.00
Cost of Asset
Purchase Price
$ 258,500.00
Freight Charges
$ 9,600.00
Installation Charges
$ 13,500.00
Total Asset Value
$ 281,600.00
DDB will be used for 4 years, that is half the life of asset.
Double Declining Method
A
Cost
$ 281,600.00
B
Residual Value
$ 61,500.00
C=A - B
Depreciable base
$ 220,100.00
D
Life [in years]
8
E=C/D
Annual SLM depreciation
$ 27,512.50
F=E/C
SLM Rate
12.50%
G=F x 2
DDB Rate
25.00%
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