Question
In: Accounting
on January 2nd 2016 the Jackson company purchased equipment to be used in its manufacturing process...
on January 2nd 2016 the Jackson company purchased equipment to be used in its manufacturing process the equipment has an estimated life of 8 years and an estimated residual value of $30,625 expenditures made to acquire the assets were as follows
purchase price $154,000
Freight charges $2,000
installation charges $4,000
Jackson's policy is to use the double declining balance method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipments life.
1. calculate depreciation for each year of the assets eight-year life
2. discuss the accounting treatment of the depreciation on the equipment
Solutions
Expert Solution
Answer 1
| Depreciation Expense = Beginning Book value * 25% |
| Book value at end of the year = Beginning Book value + Depreciation Expense |
| Year | Beginning Book value | Rate | Depreciation Expense | Accumulated Depreciation | Book value at end of the year |
| 2016 | $ 160,000 | 25.00% | $ 40,000 | $ 40,000 | $ 120,000 |
| 2017 | $ 120,000 | 25.00% | $ 30,000 | $ 30,000 | $ 90,000 |
| 2018 | $ 90,000 | 25.00% | $ 22,500 | $ 22,500 | $ 67,500 |
| 2019 | $ 67,500 | 25.00% | $ 16,875 | $ 16,875 | $ 50,625 |
| Depreciation method changed to Straight line method | |||||
| 2020 | $ 50,625 | $ 5,000 | $ 5,000 | $ 45,625 | |
| 2021 | $ 45,625 | $ 5,000 | $ 5,000 | $ 40,625 | |
| 2022 | $ 40,625 | $ 5,000 | $ 5,000 | $ 35,625 | |
| 2023 | $ 35,625 | $ 5,000 | $ 5,000 | $ 30,625 | |
| Depreciation rate under Straight line method (1/8 years) | 12.50% | ||
| Depreciation rate under the double-declining-balance method (2*12.50%) | 25.00% | ||
| Purchase price | $ 154,000 |
| Freight charges | $ 2,000 |
| Installation charges | $ 4,000 |
| Total Cost capitalized to equipment | $ 160,000 |
Answer 2
| Discuss the accounting treatment of the depreciation on the equipment |
| Depreciation method changed to Straight line method. | |
| Book value at the end of the year 2019 | $ 50,625 |
| Less: Salvage value | $ 30,625 |
| Depreciable cost | $ 20,000 |
| Divided by: Remaining life of the equipment | 4 |
| Depreciation Expense for 2020 to 2023 | $ 5,000 |
| Journal entries | |||
| Date | General Journal | Debit | Credit |
| Dec 31, 2020 | Depreciation expense | $ 5,000 | |
| Accumulated Depreciation - Equipment | $ 5,000 | ||
| (To record Depreciation expense.) | |||
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