Question

1. On January 1, 2016 Du Lac Company purchased office equipment that cost $16,000 cash. The equipment had a five year useful life and a $1,200 expected salvage value. Using straight line depreciation, determine the amount of depreciation expense and the amount of accumulated depreciation that would appear on the December 31, 2018 financial statements. A) $2,960 / $2,960. B) $2,608 / $7,824. C) $2,960 / $8,880. D) $2,600 / $7,800. Input the Letter answer from above

2. On January 1, 2016 Du Lac Company purchased office equipment that cost $16,000 cash. The equipment had a five year useful life and a $1,200 expected salvage value. Assume that Du Lac Company earned $5,000 cash revenue in 2018. Using straight line depreciation and assuming that the office equipment was sold on 12/31/18 for $6,000, the amount of net income or net loss appearing on the December 31, 2018 income statement would be: A) $2,040. B) $2,960. C) $2,760. D) $920. Input the Letter answer from above .

3.On January 1, 2016 Du Lac Company purchased office equipment that cost $16,000 cash. The equipment had a five year useful life and a $1,200 expected salvage value. If Du Lac Company had used the double-declining balance depreciation method, the depreciation expense appearing on the 2018 income statement would be: A) $2,131. B) $2,304. C) $5,920. D) $6,420. Input the correct letter answer

Answer 1

Solution:

1.)

Cost of the Equipment = $16,000
Expected Salvage Value =$1,200
Depreciation Method = Straight Line Method
Useful life = 5 Years

Depreciation per year = Cost of the Assets + Transportation cost - Salvage Value/Life of the Asset
=$16,000 - $1,200/5 = $2,960

	Depreciation Expenses	Accumulated depreciation
31/12/2016	$2960	$2960
31/12/2017	$2960	$5920
31/12/2018	$2960	$8880

Option (c) is correct Answer (C.) $2,960/$8,880

2.)

Equipment cost =$16,000
Salvage Value =$1,200
Useful life = 5 Years

Depreciation per year = (Equipment cost - Salvage value)/ Useful life
= ($16,000 - $1,200)/5 years
= $2,960

		Year 1	Year 2	Year 3	Year 4	Year 5
Depreciation per year		$2,960	$2,960	$2,960	$2,960	$2,960
Equipment cost	$16,000	$13,040	$10,080	$7,120	$4,160	$1,200

Net processing from sale calculation:

Equipment cost = $16,000
Market value at the end = $6,000
Book value of Equipment at the end of 3rd year = $7,120
Gain or loss on sale of Equipment = Market value - Book value of Equipment
=$6,000 - $7,120
$(1,120)

Net income calculation in year 3:

Revenue	$5,000
Depreciation Expenses	$(2,960)
Operating Income	$2,040
Loss on Sale of Equipment	$(1,120)
Net Income	$920

Hence net Income in year 3 is $920

Option (D) $920 is correct answer

3.)

Equipment cost = $16,000
Salvage cost =$1,200
Useful life = 5 years

Year	Depreciation Expense	Accumulated Depreciation	Carrying value($16,000)
2016	$6,400	$6,400	$9,600
2017	$3,840	$10,240	$5,760
2018	$2,304	$12,544	$3,456

Note: Depreciation Calculation : (Carrying )*Rate %(20%,2)
Total depreciation expense on 2018 is $2,304

Option (B) $2,304 is Correct Answer.