Question

QUESTION 7

1. Use the following information to answer the next two questions: (Question 1 of 2)

   Higgins Company purchased specialized equipment on July 1, 2019, that cost $300,000, has a residual value of $40,000, and a useful life of four years.

   The amount of depreciation expense for 2020, under the double declining balance method is:

   	A.	$112,500.
   	B.	None of the above
   	C.	$97,500.
   	D.	$75,000.
   	E.	$125,000.

2 points   

QUESTION 7

B

1. Use the following information to answer the next two questions: (Question 2 of 2)

   Higgins Company purchased specialized equipment on July 1, 2019, that cost $300,000, has a residual value of $40,000, and a useful life of four years.

   The net book value of the equipment at the end of 2021 (after recording depreciation for 2021) using the straight-line method would be

   	A.	$ 97,500.
   	B.	$202,500.
   	C.	None of the above.
   	D.	$137,500.
   	E.	$162,500.

Answer 1

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Higgins
Answer 7
Double Declining Method	Amount $	Note
Purchase cost	300,000.00	A
Life (Years)	4.00	B
Annual depreciation	75,000.00	C=A/B
Depreciation rate	25.00%	D=C/A
Double Depreciation %	50.00%	E=D*2
Depreciation for 2019 (full year)	150,000.00	F=A*E
Depreciation for 2019 (Jul to Dec i.e. 6 months)	75,000.00	G=F/2
Book value at the end of 2019	225,000.00	H=A-G
Depreciation for 2020	112,500.00	I=H*E
Answer is option A.
Answer 8
Straight Line Method	Amount $	Note
Purchase cost	300,000.00	A
Less: Residual Value	40,000.00	B
Depreciable cost	260,000.00	C=A-B
Life (Years)	4.00	D
Annual depreciation	65,000.00	E=C/D
Depreciation for 2019 (Jul to Dec i.e. 6 months)	32,500.00	F=E/2
Depreciation for 2020	65,000.00	G= See F
Depreciation for 2021	65,000.00	H= See F
Total Depreciation till 2021	162,500.00	I=F+G+H
Book value at the end of 2021	137,500.00	J=A-I
Answer is option D.