In: Accounting
Lone Star Sales & Service acquired a new machine that cost
$84,000 in early 2019. The machine is expected to have a five-year
useful life and is estimated to have a salvage value of $14,000 at
the end of its life. (Round your final answers to the nearest
dollar.)
(a.) Using the straight-line depreciation method, calculate the
depreciation expense to be recognized in the second year of the
machine's life and calculate the accumulated depreciation after the
third year of the machine's life.
(b.) Using the double-declining-balance depreciation method,
calculate the depreciation expense for the third year of the
machine's life and the net book value of the machine at this point
in time.
a | Depreciation under Straight line method | |||
depreciation = (Cost of the asset - Salvage Value)/ Useful life of asset | ||||
= ($84000-$14000 )/5 | ||||
=$70,000/5 | ||||
=$14,000 per year | ||||
Depreciation expense for the second year = $14,000 | ||||
Year | Opening Carrying Amount | Depreciation Expense | Accumulated Depreciation | |
2019 | 84,000 | 14,000 | 14,000 | |
2020 | 70,000 | 14,000 | 28,000 | |
2021 | 56,000 | 14,000 | 42,000 |
Accumulated Depreciation at the end of third year = $42,000
b) | Double declining Balance depreciation = 2 × Straight-line depreciation rate × Book value at the beginning of the year | |||||||
Depreciation rate = 100% / Life of the Asset | ||||||||
= 100%/5 | ||||||||
=20% | ||||||||
Year | Net book value at the beginning of the year | Annual Depreciation | Net book valueat the end of the year | |||||
2019 | 84,000 | 33,600 | 50,400 | |||||
2020 | 50,400 | 20,160 | 30,240 | |||||
2021 | 30,240 | 12,096 | 18,144 |
Depreciation Expense for the Third year = $12096
Net Book Value at the end of third year = $18,144