Question

In: Accounting

On July 1, 2020, Ayayai Company purchased for $2,880,000 snow-making equipment having an estimated useful life...

On July 1, 2020, Ayayai Company purchased for $2,880,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $120,000. Depreciation is taken for the portion of the year the asset is used.

Complete the form below by determining the depreciation expense and year-end book values for 2020 and 2021 using the
1. sum-of-the-years'-digits method.
2. double-declining balance method.
2020 2021
Sum-of-the-Years'-Digits Method
Equipment $2,880,000 $2,880,000
Less: Accumulated Depreciation $ $
Year-End Book Value
Depreciation Expense for the Year
Double-Declining Balance Method
Equipment $2,880,000 $2,880,000
Less: Accumulated Depreciation $ $
Year-End Book Value
Depreciation Expense for the Year
Assume the company had used straight-line depreciation during 2020 and 2021. During 2022, the company determined that the equipment would be useful to the company for only one more year beyond 2022. Salvage value is estimated at $160,000.

Compute the amount of depreciation expense for the 2022 income statement.
Depreciation expense $
Assume the company had used straight-line depreciation during 2020 and 2021. During 2022, the company determined that the equipment would be useful to the company for only one more year beyond 2022. Salvage value is estimated at $160,000.

What is the depreciation base of this asset?
Depreciation base $

Solutions

Expert Solution

Complete the form below by determining the depreciation expense and year-end book values for 2020 and 2021 using the
1. sum-of-the-years'-digits method.
2. double-declining balance method.
2020 2021
Sum-of-the-Years'-Digits Method
Equipment $2,880,000 $2,880,000
Less: Accumulated Depreciation $460000 $1288000
Year-End Book Value 2420000 1592000
Depreciation Expense for the Year 2880000-120000*5/15*6/12 = 460000 460000+368000 = 828000
Double-Declining Balance Method
Equipment $2,880,000 $2,880,000
Less: Accumulated Depreciation $576000 $1497600
Year-End Book Value 2304000 1382400
Depreciation Expense for the Year 2880000*40%*6/12 = 576000 576000+345600= 921600

2) Accumulated Depreciation = (2880000-160000/5*1.5) = 816000

2022 Depreciation = (2880000-160000-816000)/2 = 952000

3) 2022 Depreciable base = (2880000-816000-160000) = 1904000


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