Question
In: Accounting
Depreciation by Two Methods A storage tank acquired at the beginning of the fiscal year at...
Depreciation by Two Methods
A storage tank acquired at the beginning of the fiscal year at a cost of $126,000 has an estimated residual value of $7,500 and an estimated useful life of 5 years.
a. Determine the amount of annual depreciation
by the straight-line method.
$
b. Determine the amount of depreciation for the first and second years computed by the double-declining-balance method. Do not round the double-declining balance rate. If required, round your answers to the nearest dollar.
| Depreciation | |
| Year 1 | $ |
| Year 2 | $ |
Solutions
Expert Solution
a.
| Straight Line Depreciation | ||||
| (Cost - Residual Value) | / | Useful Life | = | Annual Depreciation |
| (126,000 - 7,500) | / | 5 | = | $ 23,700.00 |
b.
| Double Declining Balance Depreciation | |||||
| Beginning book value | x | Double the straight- | = | Depreciation expense | |
| line rate | |||||
| Year 1 | $ 126,000.00 | x | 40% | = | $ 50,400.00 |
| Year 2 | $ 75,600.00 | x | 40% | = | $ 30,240.00 |
| Explanation: | |||||
| Double-declining-balance rate = (100% / 5 years) × 2 = 40% per year | |||||
| Book value at beginning of year 2 = $126,000 - $50,400 = $75,600 | |||||
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