Question

   Assume the following for an equipment purchase on 1/1/16:

                        $250,000 -Purchase Cost

                        $50,000 -Salvage Value

                           5 Year -Useful Life

            Machine hour life expectancy 100,000 hours, 20,000 hours ran in year 1

41.     Under the Straight line method of Depreciation, Depreciation expense for year 1 is:

        

a. $5,000

        b. $40,000

        c. $80,000

        d. $100,000

42.     Under DDB (Double Declining Balance) Depreciation expense for year 1 is:

         

a. $50,000

b. $40,000

c. $80,000

d. $100,000

43.     Under DDB (Double Declining Balance) Depreciation expense for year 2 is:

a. $80,000

b. $50,000

c. $60,000

d. $100,000

44.     Under the Units of Production Method, Depreciation for year 1 is:

        a. $50,000

        b. $40,000

        c. $60,000

        d. $80,000

45.     Net Book Value at the end of Year 2 under the STRAIGHT LINE METHODis:

        a. $200,000

        b. $180,000

        c. $170,000

        d. $220,000

Answer 1

Answer:-41)- Straight line Method:-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($250000-$50000)/4 years

=$200000/5 years = $40000

First year depreciation =$40000

42)- Double Declining balance depreciation is calculated using the following formula:

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/5 = 0.20 = 20%
Declining Balance Rate = 2*20% = 40%

Depreciation 1^st year = $250000 *40% = $100000

43)- Depreciation 2^nd year under Double Declining balance method :-

= ($250000- $100000)* 40% = $60000

44)- Units of production method:-

Annual depreciation expense per hour=Cost – salvage /Total machine hour

                =($250000-$50000)/100000 hours =$2 per machine hour

Depreciation expense in year 1= Depreciation expense per machine hour*Hours ran in year 1

                                                =$2 per machine hour * 20000 hours

                                                 =$40000

45)- Straight line Method:-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($250000-$50000)/4 years

=$200000/5 years = $40000

First year depreciation =$40000

Book value at first year =$250000-$40000=$210000           

Second year depreciation =$40000

Book value at first year =$210000-$40000=$170000