12) 2010 depreciation expense, ) ule 2016 improvements, and (5) 2016 depreciatio
ID: 2515831 • Letter: 1
Question
12) 2010 depreciation expense, ) ule 2016 improvements, and (5) 2016 depreciation expense. alculate the book value of the machine at the end of 2016 (that is, after recording the deprecia- tion expense for 2016). RIAL PROBLEM: KATE'S CARDS is is a continuation of the Serial Problem: Kate's Cards from Chapters 1 through 8.) Kate's business is growing faster than she had predicted. In order to keep up, she will need to pur- chase improved computer hardware. Kate has learned that the software that he uses runs much faster ?her computer has a lot of memory. In addition her files are very large and she is running out of free space on her existing hard drive. Finally, Kate has heard horror stories about hard disk drive crashes and the possibility that all of her work will be destroyed. In order to protect against this possibility, she has decided to invest in a large commercial grade backup system. ses hCors The cost of the memory and hard disk drive upgrade to Kate's computer will total $420. The cost Kate's current computer; however, it will not extend is useful life. The backup system is expected to have a 5-year useful life. Kate would like to know the following items: 1. How should the expenditure for the memory and hard disk drive upgrade be recorded? Provide the journal entry 2. Kate's current computer has 42 months remaining for depreciation purpose (under the straight-line method)·The original cost of the computer was $4,800 and had a four-year useful life. The current monthly depreciation is $100. How will this current expenditure affect the monthly depreciation? 3. Kate would like to know how depreciation on the backup system under both the straight-line method and the double-declining method differ. She is assigning a $500 salvage value to the equip- ment. Construct a table showing yearly depreciation under both methods.Explanation / Answer
1. As the expenditure on memory and hard disk will not extend the life of the asset , this needs to be charged to the income on the date it is incured. the journal entry will be
2. Monthyl depreciation will go up by $42 with the current expenditure on the backup system.
Cost of the back up system = $3,000
Salvage Value =$500
Estimated life = 5 years
Annual depreciation = (3,000 - 500)/5 = $500
Monthly depreciatio = 500 / 12 = $42 (rounded)
3.
The straight line method depreciation = $42 (worked out above)
Double declining rate will be at double the rate charged under straight line method, but applied on the net value (Declining balance ) of the asset each year.
Estimated life of the asset = 5 years
Rate of depreciation under straight line method = 100/5 = 20%
Rate under double declining method = 40%.
Year Cost/ Net value Rate of Dep. Amount of Dep.
1 $3,000 40% $1,200
2. $1,800 40% $720
3. $ 1,080 40% $432
4. $ 648 $148
In the fourth year the depreciation will be limited to $148 , since the estimated salvage value is $500.
For equipment which are constantly getting tehcnologically upgraded, the double declining method will be a good basis of charging depreciation, as this would enable the business to recover the costs earlier than the normal methods.
Account Title Debit Credit Maitenance of computer equipment 420 Cash 420Related Questions
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