n April 2, 2014, Victor, Inc. acquired a new piece of filtering equipment. The c
ID: 2482536 • Letter: N
Question
n April 2, 2014, Victor, Inc. acquired a new piece of filtering equipment. The cost of the equipment was $420,000 with a residual value of $30,000 at the end of its estimated useful lifetime of 5 years.
Assume that in its financial statements, Victor uses straight-line depreciation and rounds depreciation for fractional years to the nearest whole month. Depreciation recognized on this equipment in 2014 and 2015 will be:
A.$78,000 in 2014 and $78,000 in 2015.
B.$84,000 in 2014 and $84,000 in 2015.
C.$30,000 in 2014 and $78,000 in 2015.
D.$58,500 in 2014 and $78,000 in 2015.
Assume that in its financial statements, Victor uses straight-line depreciation and the half-year convention. Depreciation recognized on this equipment in 2014 and 2015 will be:
A.$39,000 in 2014 and $78,000 in 2015.
B.$58,500 in 2014 and $67,200 in 2015.
C.$30,000 in 2014 and $78,000 in 2015.
D.$84,000 in 2014 and $67,200 in 2015.
If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, 2015 will be:
A.$264,000.
B.$262,500.
C.$303,000.
D.$312,000.
Assume that in its financial statements, Victor uses straight-line depreciation and rounds depreciation for fractional years to the nearest whole month. Depreciation recognized on this equipment in 2014 and 2015 will be:
Explanation / Answer
1. Depreciation recognized on this equipment in 2014 and 2015 will be = $420,000 - $30,000 = $390,000 / 5 = $78,000. In this case as the asset is purchased in April the depreciation for 2014 is only for 9 months and 12 months for 2015. Therefore the answer is $58,500 in 2014 and $78,000 in 2015.
2. Depreciation as per Half Year Convention = As per Half year Convention the The asset is treated as if purchased in the middle of the year and depreciation is calcualted for the first year and the half depreciation is charged in the last year. Hence in the present case the depreciation for whole year is $78,000. So the the depreiation as per Half Year Convention for 2014 is $39,000 and $78,000 for 2015.
Book Vaue of the asset as on Dec 31st 2015 using the Half Year Convention Method = Purchase Value - 2014 Depreciaiton - 2015 Depreciation
Therefore = $420,000 -39,000 - 78,000 = $303,000
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