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In early January 2017, NewTech purchases computer equipment for $273,000 to use in operating activities for...


In early January 2017, NewTech purchases computer equipment for $273,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $26,000.

rev: 07_27_2017_QC_CS-94103

Exercise 8-7 Straight-line depreciation LO P1

Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation.

Prepare a table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation.

Solutions

Expert Solution

Straight-line depreciation means that the computer equipment will be depreciated equally for the next four years.

Depreciation amount = (Purchase amount - Salvage Value ) / Useful life

= ($273,000 - $26,000) / 4

= $61,750.

Year Book value in the beginning Depreciation Book value in the End
1 $273,000 $61,750 $211,250
2 $211,250 $61,750 $149,500
3 $149,500 $61,750 $87,750
4 $87,750 $61,750 $26,000

Double-declining balance depreciation is calculated by the following formula :

Depreciation for year 1 = ( 2 / Useful life of asset ) * ( Cost - Accumulated Depreciation )

= ( 2 / 4 ) * ( $273,000 - 0 )

= $136,500.

Depreciation for year 2 = ( 2 / 4 ) * ( $273,000 - $136,500 )

= $68,250.

Depreciation for year 3 = ( 2 / 4 ) * ( $273,000 - $136,500 - $68,250 )

= $34,125.

Book value at the starting of the year 4 = $273,000 - $136,500 - $68,250 - $34,125

= $34,125.

Salvage value = $26,000.

Therefore, the depreciation for the 4th year will be limited to = Book value at year 4 starting - Salvage value

= $34,125 - $26,000

= $8,125.

Year Book value in the beginning Depreciation Book value in the End
1 $273,000 $136,500 $136,500
2 $136,500 $68,250 $68,250
3 $68,250 $34,125 $34,125
4 $34,125 $8,125 $26,000

ekkarill92 answered 1 month ago
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