Question

On July 1, 2020, Concord Company purchased for $7,200,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $300,000. Depreciation is taken for the portion of the year the asset is used.

Complete the form below by determining the depreciation expense and year-end book values for 2020 and 2021 using the

1.		sum-of-the-years'-digits method.
2.		double-declining balance method.

		2020		2021
Sum-of-the-Years'-Digits Method
Equipment		$7,200,000		$7,200,000
Less: Accumulated Depreciation		$		$
Year-End Book Value
Depreciation Expense for the Year
Double-Declining Balance Method
Equipment		$7,200,000		$7,200,000
Less: Accumulated Depreciation		$		$
Year-End Book Value
Depreciation Expense for the Year

Assume the company had used straight-line depreciation during 2020 and 2021. During 2022, the company determined that the equipment would be useful to the company for only one more year beyond 2022. Salvage value is estimated at $400,000.

Compute the amount of depreciation expense for the 2022 income statement.

Depreciation expense

$

Assume the company had used straight-line depreciation during 2020 and 2021. During 2022, the company determined that the equipment would be useful to the company for only one more year beyond 2022. Salvage value is estimated at $400,000.

What is the depreciation base of this asset?

Depreciation base

$

Answer 1

Sum of the years' digit method

	2020	2021
Equipment	7,200,000	7,200,000
Less: Accumulated depreciation	2,300,000	4,140,000
Year end book value	4,900,000	3,060,000
Depreciation expense for the year	2,300,000	1,840,000

Equipment cost = 7,200,000

Salvage value= 300,000

Useful life 5 years

Depreciation amount= acquisition cost - salvage value

= 7,200,000-300,000= 6,900,000

Sum of useful life =5+4+3+2+1=15

Year 1 depreciation= 6,900,000×5÷15 = $2,300,000

Year 2 depreciation= 6,900,000×4÷15= $1,840,000.

Straight line balance method

	2020	2021
Equipment	7,200,000	7,200,000
Less: Accumulated depreciation	1,380,000	2,760,000
Year end book value	5,820,000	4,440,000
Depreciation expense for the year	1,380,000	1,380,000

Depreciation Year 1 and 2= 7,200,000 - 300,000/5 =1,380,000

Depreciation expense for 2022 = 2,020,000

Cost of the equipment= 7,200,000

Depreciation for 2020 = 1,380,000

Depreciation for 2021 = 1,380,000

Cost of the asset after 2 years = 7,200,000-2,760,000= 4,440,000

In the year 2022 the asset will be useful for one more year only and salvage value is 400,000

Depreciation for 2022= 4,440,000-400,000= 4,040,000÷2 = 2,020,000

Depreciation base for 2022 is 3,434,000 ( 4,440,000-400,000) = 4,040,000