Question

In: Finance

Central Supply purchased a new printer for $70,000 in January of 2017. It has a fiscal...

Central Supply purchased a new printer for $70,000 in January of 2017. It has a fiscal yearend of December 31. The printer is expected to operate for nine years, after which it will be sold for salvage value (estimated to be $6,550).

a.      (i) How much is the depreciation expense for the year end December 2017 and for yearend December 2018 if the company uses the double-declining-balance method?

(ii) What does the disclosure look like for the Balance Sheet as it relates to the printer for the year end December 2017 and for yearend December 2018 (using the double-declining balance method)?

b.      (i) How much is the depreciation expense for the year end December 2018 if the company uses the straight-line method?

(ii) What is the amount to be disclosed on the Balance Sheet as the value for the printer for the year end December 2018 (using the straight-line method)?

Solutions

Expert Solution

Printer value =$70000

Salvage value=$6550

Depreciation amount=initial purchase value- salvage value=70000-6550=$63450

Useful life=9 years

Answer a (i)

Straight line depreciation rate=100%/9=11.11%

Hence double declining rate=2*11.11%=22.22%

First year depreciation = depreciation rate*depreciation amount=22.22%*63450=$14098.59

Bok value at end of year 1=63450-14098.59=$49351.41

Second year depreciation =22.22%*49351.41=$10965.88

Book value at end of year 2=49351.41-10965.88=$38385.53

Hence Depreciation for December 2017 is $14098.59 and for year 2018 is $10965.88

Answer a(ii)

Disclosure in balance sheet will be the book value I.e for year December 2017 is initial value-depreciation year1=70000-14098.59=$55901.41

Book value for year 2018 = book value 2017- depreciation for 2018=55901.41-10965.88=$44935.53

Answer b(i)

Straight line depreciation rate=11.11%

Hence depreciation each year=11.11%*63450=$7049.295

Hence depreciation for year 2018 is $7049.295

Answer b(ii)

In December 2018 depreciation will booked twice hence

Book value = purchase value-2×yearly depreciation =70000-2*7049.295=70000-14098.59=$55901.41


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