Question

On January 2, 2011, Jansing Corporation acquired a new machine with an estimated useful life of five years. The cost of the equipment was $40,000 with a residual value of $5,000.

a. Prepare a complete depreciation table under the two depreciation methods listed below.

1. Straight-line.

2. 200 percent declining-balance.

3. 150 percent declining-balance with a switch to straight-line when it will maximize depreciation

expense.

Answer 1

Answer:

a)
1.) Straight line method:

Cost - Residual Value (or) Salvage Value / Years of Useful life
=40000-5000 / 5

Cost of the building	40000
Less: Estimated residual value (or) salvage value	(5000)
Total amount to be depreciated (depreciable cost)	35000
Estimated useful life	5 years
Depreciation expenses each year (35000/5)	7000

Depreciation Schedule: Straight-Line Method

Year	Computation	Depreciation Expense	Accumulated Depreciation	Book Value
				40000
First	35000*1/5	7000	7000	33000
Second	35000*1/5	7000	14000	26000
Third	35000*1/5	7000	21000	19000
Fourth	35000*1/5	7000	28000	12000
Fifth	35000*1/5	7000	35000	5000
Total		35000

2.) 200 percent declining - balance method:

Cost of the Equipment = 40000
Useful life = 5 years
Straight line depreciation rate = 1/5
Straight line depreciation rate = 20%
Doubling this straight-line rate indicates an accelerated depreciation rate of 40 percent

Depreciation Schedule: 200% Declining Balance Method

Year	Computation	Depreciation Expense	Accumulated Depreciation	Book Value
				40000
First	40000*40%	16000	16000	24000
Second	40000*40%	9600	25600	14400
Third	40000*40%	5760	31360	8640
Fourth	40000*40%	3456	34816	5184
Fifth	5184-5000	184	35000	5000
Total		35000

Note: a. limited to $184 because book value should not be less than salvage value

3.) 150 percent decling - balance method:

Cost of the Equipment = 40000
Useful life = 5 years
Straight line depreciation rate = 1/5
Straight line depreciation rate = 20%

Doubling this straight line rate indicates an accelerated depreciation rate of 40%

Now assumee that we wanted to depreciate this equipment using 150 percent of the straight line rate In this case the depreciation rate will be 30 percent instead of 40% (a 20% straight line rate * 150% = 0.30 or 30%)

Depreciation Schedule: 150% Declining Balance Method

Year	Computation	Depreciation Expense	Accumulated Depreciation	Book Value
				40000
First	40000*30%	12000	12000	28000
Second	28000*30%	8400	20400	19600
Third	19600*30%	5880	26280	13720
Fourth	(13720-5000)/2	4360	30640	9360
Fifth	(9360-5000)	4360	35000	5000
Total		35000

Note: Switched to the straight line method for year 4 and year 5