Question

Computing Straight-Line and Double-Declining-Balance Depreciation

On January 2, Haskins Company purchases a laser cutting machine for use in fabrication of a part for one of its key products. The machine cost $120,000, and its estimated useful life is five years, after which the expected salvage value is $7,500. Compute depreciation expense for each year of the machine's useful life under each of the following depreciation methods: Round answers to the nearest whole number, when applicable.

a. Straight-line

Year 1 $Answer

Year 2 $Answer

Year 3 $Answer

Year 4 $Answer

Year 5 $Answer

b. Double-declining-balance

Year 1 $Answer

Year 2 $Answer

Year 3 $Answer

Year 4 $Answer

Year 5 $Answer

Answer 1

Requirement 1

Straight line Method
A	Cost	$             120,000
B	Residual Value	$                  7,500
C=A - B	Depreciable base	$             112,500
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$                22,500

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$                  120,000	$                22,500	$                   97,500	$                     22,500
2	$                     97,500	$                22,500	$                   75,000	$                     45,000
3	$                     75,000	$                22,500	$                   52,500	$                     67,500
4	$                     52,500	$                22,500	$                   30,000	$                     90,000
5	$                     30,000	$                22,500	$                     7,500	$                   112,500

Year	Depreciation expense by straight line
1	$                22,500
2	$                22,500
3	$                22,500
4	$                22,500
5	$                22,500

Requirement 2

Double declining Method
A	Cost	$       120,000.00
B	Residual Value	$            7,500.00
C=A - B	Depreciable base	$       112,500.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$          22,500.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$            120,000.00	40.00%	$             48,000.00	$               72,000.00	$         48,000.00
2	$               72,000.00	40.00%	$             28,800.00	$               43,200.00	$         76,800.00
3	$               43,200.00	40.00%	$             17,280.00	$               25,920.00	$         94,080.00
4	$               25,920.00	40.00%	$             10,368.00	$               15,552.00	$      104,448.00
5	$               15,552.00	40.00%	$               8,052.00	$                  7,500.00	$      112,500.00

Depreciation in year 5 was $6220.8 but that would not make ending book value equal to residual value so deprecation is increased to make ending value equal to residual value.

Year	Depreciation expense by DDB
1	$             48,000
2	$             28,800
3	$             17,280
4	$             10,368
5	$               8,052