Question

In: Accounting

Equipment costing $540,000 with an expected useful life of 10 years and an expected salvage value...

Equipment costing $540,000 with an expected useful life of 10 years and an expected salvage value of $40,000, was purchased at the beginning of the year.

Calculate the depreciation expense for the first five years using:

(a) Sum-of-the-years' digits method. Do not round until final calculation. Round answers to the nearest whole number.

Year 1 $Answer
Year 2 $Answer
Year 3 $Answer
Year 4 $Answer
Year 5 $Answer

(b) Double-declining balance method (without straight-line switchover). Do not round until final calculation. Round answers to the nearest whole number.

Year 1 $Answer
Year 2 $Answer
Year 3 $Answer
Year 4 $Answer
Year 5 $Answer

Solutions

Expert Solution

a) Cost $540,000
Salvage Value $40,000
Depreciable Amount= Cost- Salvage Value
$540000-$40000
Depreciable Amount= $500,000
Useful Life 10 years
Sum of years digit = 10+9+8+7+6+5+4+3+2+1
$55
Sum of years digit method
Years Sum of years digit (a) Digit (b) Depreciation ( Depreciable Amount*b/a) Calculation
1 55 10 $90,909.09 ( 500000*10/55)
2 55 9 $81,818.18 ( 500000*9/55)
3 55 8 $72,727.27 ( 500000*8/55)
4 55 7 $63,636.36 ( 500000*7/55)
5 55 6 $54,545.45 ( 500000*6/55)
b) Double Declinging Balance method
Depreciation rate 100%/useful life
100%/10
10%
Deprciation rate gets doubled 10%*2 20%
Years Book Value Depreciation (Book Value *20%) Calculation
1 $540,000.00 $108,000.00 (540000*20%)
2 $432,000.00 $86,400.00 (432000*20%)
3 $345,600.00 $69,120.00 (345600*20%)
4 $276,480.00 $55,296.00 (276480*20%)
5 $221,184.00 $44,236.80 (221184*20%)

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