Computing and recording straight-line versus double-declining-balance depreciati

Question

Computing and recording straight-line versus double-declining-balance depreciation Exercise 6-9 LO 6-3 a new computerized drill press for At the beginning of 2014, Metal Manufacturing purchased $75,000. It is expected to have a five-year life and a $15,000 salvage valuo Required a· Compute the depreciation for each of the five years, assuming that the company uses (1) Straight-line depreciation purchase of the drill press and the depreciation expense for the first year under model like b. Record the the straight-line and double-declining-balance methods in a financial statements the following one: Assets Equity Rev. - Exp. = Net Inc. Cash Flow Cash + Drill Press - Acc. Dep. = Ret. Earn

Explanation / Answer

a.(1) STRAIGHT LINE DEPRECIATION: Depreciation per year=((Initial cost of deprecible asset)- (Salvage value)/useful life Initial cost $75,000 Salvage value $15,000 (Initial cost-Salvage value) $60,000 Useful Life $5 Depreciation per yesr 12000 (60000/5) Year Depreciation End of year During the year Book Value 0 $75,000 1 $12,000 $63,000 2 $12,000 $51,000 3 $12,000 $39,000 4 $12,000 $27,000 5 $12,000 $15,000 a.(2) DOUBLE DECLINING BALANCE DEPRECIATION Depreciation rate=2*(Straight lene rate) Depreciation rate in straight line depreciation=1/5=0.2 Depreciation rate in double ceclining balance=2*0.2=0.4 Depreciation during the year=(Beging of year book value)*(depreciation rate) Depreciation stops when Book Value=Salvage Value A B C=A*B D=A-C Year Beginning of year Depreciation Depreciation End of year Book Value Rate Amount Book Value 1 $75,000 0.4 $30,000 $45,000 2 $45,000 0.4 $18,000 $27,000 3 $27,000 0.4 $10,800 $16,200 4 $16,200 0.4 $1,200 $15,000 (Depreciation stops when Book Value=Salvage Value) 5 $15,000 0 $0 $15,000 Assets Equal to Equity Rev minus Expense Equal to Net Inc. Cashflow Cash Plus Drill press minus Acc.Dep. Equal to Ret. Earn. Purchase(Straightline ) ($75,000) $75,000 ($75,000) First year depreciation(St Line) $12,000 ($12,000) $12,000 ($12,000) Purchase(double decline ) ($75,000) $75,000 ($75,000) First year depreciation(Double decln) $30,000 ($30,000) $30,000 ($30,000)

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