Question

On July 1, 2017, Sparks Company purchased for $4,300,000 an equipment having an estimated useful life of 5 years with an estimated residual value of $200,000. Depreciation is taken for the portion of the year the asset is used.

Instructions

(a) Complete the form below by determining the depreciation expense and year-end book values for 2017and 2018 using the

      1.   sum-of-the-years'-digits method.

      2.   double-declining balance method.

      Sum-of-the-Years'-Digits Method                                    2017                           2018    

      Equipment                                                                  $4,300,000                  $4,300,000

      Less: Accumulated Depreciation                                   _______                      _______

      Year-End Book Value                                                    _______                      _______

      Depreciation Expense for the Year                               _______                      _______

      Double-Declining Balance Method

      Equipment                                                                   $4,300,000                  $4,300,000

      Less: Accumulated Depreciation                                   _______                      _______

      Year-End Book Value                                                    _______                      _______

      Depreciation Expense for the Year                               _______                      _______

(b)        Assume the company had used straight-line depreciation during 2017 and 2018. During 2019, the company determined that the equipment would be useful to the company for only one more year beyond 2019. Residual value is estimated at $300,000. Compute the amount of depreciation expense for the 2019 income statement.

Answer 1