Question

On January 2, 2018, Jatson Corporation acquired a new machine with an estimated useful life of five years. The cost of the equipment was $60,000 with an estimated residual value of $5,000.

a-1. Prepare a complete depreciation table under the straight-line method. Assume that a full year of depreciation was taken in 2018.

a-2. Prepare a complete depreciation table under the 200 percent declining-balance method. Assume that a full year of depreciation was taken in 2018.

a-3. Prepare a complete depreciation table under the 150 percent declining-balance with a switch to straight-line when it will maximize depreciation expense. Assume that a full year of depreciation was taken in 2018.

Answer 1

a-1) Annual depreciation exp = (Cost - Salvage Value)/Useful Life

= ($60,000 - $5,000)/5 yrs

= $55,000/5 yrs = $11,000 per year

Depreciation Table (Amounts in $)

Year	Beginning Balance (A)	Depreciation Exp (B)	Accumulated Depreciation	Ending Balance (A-B)
2018	60,000	11,000	11,000	49,000
2019	49,000	11,000	22,000	38,000
2020	38,000	11,000	33,000	27,000
2021	27,000	11,000	44,000	16,000
2022	16,000	11,000	55,000	5,000

a-2) Depreciation rate under 200 declining balance method = (1/Useful life)*200%

= (1/5 yrs)*200% = 0.40 or 40%

Depreciation Table (Amounts in $)

Year	Beginning Balance (A)	Depreciation Exp @40% (B = A*40%)	Accumulated Depreciation	Ending Balance (A-B)
2018	60,000	24,000	24,000	36,000
2019	36,000	14,400	38,400	21,600
2020	21,600	8,640	47,040	12,960
2021	12,960	5,184	52,224	7,776
2022	7,776	3,110	55,334	4,666

a-3) Depreciation rate under 150 declining balance method = (1/Useful life)*150%

= (1/5 yrs)*150% = 0.30 or 30%

Depreciation Table (Amounts in $)

Year	Beginning Balance (A)	Depreciation Exp @30% (B = A*30%) (upto 2020) (from 2021 straight line is used)	Accumulated Depreciation	Ending Balance (A-B)
2018	60,000	18,000	18,000	42,000
2019	42,000	12,600	30,600	29,400
2020	29,400	8,820	39,420	20,580
2021	20,580	7,790**	47,210	12,790
2022	12,790	7,790	55,000	5,000

**Switch to straight line in 2021 = (Book Value at the beg of 2021 - Salvage Value)/Remaining useful life

= ($20,580 - $5,000)/2 yrs = $7,790 per year