Question

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7-5. A new barcode reading device has an installed cost basis of $24,750 and an estimated...

7-5. A new barcode reading device has an installed cost basis of $24,750 and an estimated service life of seven years. It will have a zero salvage value at that time. The 200% declining balance method is used to depreciate this asset. a. What will the depreciation charge be in year seven? b. What is the book value at the end of year six? c. What is the gain (or loss) on the disposal of the device if it is sold for $800 after six years?

Solutions

Expert Solution

Requirement a

Depreciation charge be in year seven= $ 3,287

Requirement b

book value at the end of year six= $3,287

Requirement c

Loss on sale = $ 2,487

Working

Double declining Method
A Cost $        24,750.00
B Residual Value $                        -  
C=A - B Depreciable base $        24,750.00
D Life [in years] 7
E=C/D Annual SLM depreciation $           3,535.71
F=E/C SLM Rate 14.29%
G=F x 2 DDB Rate 28.57%
Depreciation schedule-Double declining
Year Beginning Book Value Depreciation rate Depreciation expense Accumulated Depreciation Ending Book Value
1 $          24,750.00 28.57% $               7,071 $               7,071 $            17,679
2 $          17,678.57 28.57% $               5,051 $            12,122 $            12,628
3 $          12,627.55 28.57% $               3,608 $            15,730 $               9,020
4 $            9,019.68 28.57% $               2,577 $            18,307 $               6,443
5 $            6,442.63 28.57% $               1,841 $            20,148 $               4,602
6 $            4,601.88 28.57% $               1,315 $            21,463 $               3,287
7 $            3,287.06 28.57% $               3,287 $            24,750 $                       0
Cost $               24,750
Accumulated depreciation $               21,463
Book value $                 3,287
Sales price   $                     800
Book value $                 3,287
Gain /(loss) $               (2,487)

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