Boscan Corporation purchased machinery on January 1, 2014, at a cost of $288,000
ID: 2448769 • Letter: B
Question
Boscan Corporation purchased machinery on January 1, 2014, at a cost of $288,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $26,300. The company is considering different depreciation methods that could be used for financial reporting purposes.
(a)
STRAIGHT-LINE DEPRECIATION
Computation
End of Year
Years
Depreciable Cost
Depreciation Rate
Annual Depreciation Expense
Accumulated Depreciation
Book Value
DOUBLE-DECLINING-BALANCE DEPRECIATION
Computation
End of Year
Years
Book Value Beginning of Year
Depreciation Rate
Annual Depreciation Expense
Accumulated Depreciation
Book Value
9,700
Boscan Corporation purchased machinery on January 1, 2014, at a cost of $288,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $26,300. The company is considering different depreciation methods that could be used for financial reporting purposes.
Explanation / Answer
1)
Depreciation Amount = Cost of Asset - salvage value / 4 years
= $288,000 - $26,300 / 4
=$65,425
Deprecaiton cost = $288,000 - $26,300 =$261,700
Rate of Depreciation = Amount of Depreciation / Cost of Asset * 100
= $65,425 / $288,000 *100
=22.72
Year Depreciable Cost Depre. Rate = Annual Depreciation Acc. Depre. Book Value
2014 $261,700 22.72 % $65,425 $65,425 $196,275
2015 $261,700 22.72 % $65,425 $130,850 $130,850
2016 $261,700 22.72 % $65,425 $196,275 $65,425
2017 $261,700 22.72 % $65,425 $261,700 0
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2) DOUBLE-DECLINING-BALANCE DEPRECIATION
Straight line Method = 1 / 4 =25% *200%=25*2=50%
2014 = $288,000 * 50 / 100 = $144,000
2015 - $288,000 - $144,000 =$144,000 * 50/100=$72,000
2016= $288,000 - $144,000 - $72,000=$72,000 *50/100=$36,000
2017 = $288,000 - $144,000 - $72,000 - $36,000=$36,000
1)Year Depreciable Cost * Depre. Rate = Annual Depreciation Acc. Depre. Book Value
2014 $288,000 50% = $144,000 $144,000 $144,000
2015 $288,000 50% = $72,000 $216,000 $72,000
2016 $288,000 50% = $36,000 $252,000 $36,000
2017 $288,000 50% = 9,700 $288,000 0
Note: 2017 : $36,000 - $26,300.=9,700
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