Question

You have been hired by Patterson & Associates, a small events planning company that recently had a fire in which some of the accounting records were damaged.

In reviewing the fixed asset records, you find four depreciation schedules that are not labeled. They are listed in the table below. One of the assets has a depreciation rate of $4.40 per hour.

Year	Schedule A	Schedule B	Schedule C	Schedule D
1	$6,320.00	$6,000.00	$10,125.00	$8,800.00
2	10,112.00	3,600.00	13,500.00	6,600.00
3	6,067.20	2,160.00	13,500.00	7,480.00
4	3,634.00	1,296.00	13,500.00	6,600.00
5	3,634.00	444.00	3,375.00	4,400.00
6	1,832.80			7,040.00
7				4,840.00
8
Total	$31,600.00	$13,500.00	$54,000.00	$45,760.00

1. Determine which depreciation method is shown in each schedule on the Patterson & Associates panel. Then match each schedule to the asset description that best characterizes the type of assets often depreciated using that method.

Asset Description	Depreciation Schedule Used
Asset generating greater revenues in the early years	?
5-year asset class that includes light-duty trucks	?
Asset with variable in-service time	?
Asset producing steady revenues	?

2. For each of the depreciation schedules shown on the Patterson & Associates panel, fill in the information below. Leave any cells blank that cannot be determined from the depreciation schedule.

	A	B	C	D
Useful life
Residual value
Asset cost
Total operating hours

Review the depreciation schedules on the Patterson & Associates panel, then answer the questions below.

1. How would you adjust Schedule C if, at the beginning of Year 3, the asset was estimated to have 5 more years of life remaining, but with a residual value that was $3,000 higher?

The total depreciation for this asset now will be ____?. The depreciation amount for Year 3 will be ____?.

2. You note in the accounting records that the asset in Schedule A was sold on December 31 of Year 4 for $3,000. Was there a gain or a loss on the sale?

There was because ___?.

3. What is the difference between the journal entries for discarding or selling a fixed asset?

The journal entry to differs from the other entry because ______? .

4. Complete the following sentences about depreciation.

(A) When a fixed asset is fully depreciated it is if _____? . (B) The balance of the Accumulated Depreciation account represents ____? . (C) Depreciation measures _____? .

Answer 1

1) In Schedule A the depreciation method used is MACRS depreciation method for 5 year property with half year convention.

Therfore the rates of depreciation for the 6 years are :

20%

32%

19.2%

11.52%

11.52%

5.76%

The value of the asset would be: 6320/20%. i.e. 31600. The description of asset matching with this depreciation method would be Assets generating greater revenues during the initial years.

2)In schedule B the method of depreciation used is Written down value method. The rate of depreciation would be 40%. And the value of asset would be: 6000/40%= 15000. The asset description that matches with this method is Five year class assets that includes light duty trucks.

3) In schedule C, the method of depreciation followed is straight line method, The asset is being depreciated equally all over the years. In First year depreciation is charged proportionately for 3/4th of one year and for the 5th year it is charged for 1/4th of the year.. the asset description that matches with this method is Assets producing steady revenues.

4) In Schedule D, depreciation is charged on a rate of 4.40$ per hour as it is an asset with a variable service time. The total no. of hours worked is 45760/4.4= 10400 hours.

Depreciation is charged according to the no. of hours worked for each year.

he asset description that matches with this method is Asset with variable in-service time.

2)

	A	B	C	D
Useful life	5	5	5	7
Residual value	1832.8	444	0
Asset cost	31600	15000	54000
Total operating hours				10400

3rd)

1) The total depreciation for this asset will be the same i.e. 54000$ since in straight line method the value of the asset is depreciated to 0 irrespective of the number of years. The depreciation for the third year will be (13500+13500+3375)/5*1=6075$.

2) There was a loss on sale of asset since the book value of the asset was 5466.8$ and it was sold for 3000$, Hence there ws a loss of 2466.8$.