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january 1,2016 woff inc. paid $556000 for a computer system. in addition to the basic purchase...

january 1,2016 woff inc. paid $556000 for a computer system. in addition to the basic purchase price, the company paid a setup fee of $4200,$6800 sales tax and $3600 for special installation. management estimates that the computer will remain in service for. five years and have a residual value of $20,000. The computer will process 50,000 documents the first year, decreasing annually by 5,000 during each of the nest four years (that is 45,000 documents in 2017, 40,000 documents in 2018, and so on). In trying to decided which depreciation method to use, the company president has requested a depreciation schedule for each of three depreciation methods (straight- line, units-of-production, and double-declining-balance)

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Expert Solution

capitalised cost = 556000+4200+6800+3600=570600

1)straight line method = [cost- salvage value ]/useful life in years

                = [570600-20000]/5

                 = 110120

Depreciation expense Accumulated depreciation
1 110120 110120
2 110120 110120+110120= 220240
3 110120 220240+110120= 330360
4 110120 330360+110120= 440480
5

110120

 440480+110120= 550600

2)unit of production method : [cost-salvage ]/useful life in documents

       =[570600-20000]/200000

         = 2.753 per document

Depreciation expense Accumulated depreciation
1 50000*2.753 = 137650 137650
2 45000*2.753= 123885 137650+123885 = 261535
3 40000*2.753 = 110120 261535+110120= 371655
4

35000*2.753= 96355

 371655+96355= 468010
5 30000*2.753= 82590 468010+82590= 550600

3)Double declining method = 2 /useful life

           = 2/5

              = .40 or 40%

Depreciation expense carrying value
1 570600*.40= 228240 570600-228240=342360
2 342360*.40= 136944 342360-136944= 205416
3 205416*.40= 82166.4 205416-82166.4= 123249.6
4 123249.6*.40= 49299.84 123249.6-49299.84= 73949.76
5 73949.76*.40= 29579.90 73949.76-29579.90= 44369.86

ekkarill92 answered 1 year ago
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