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On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process....

On January 2, 2018, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $63,125. The expenditures made to acquire the asset were as follows: Purchase price $ 264,000 Freight charges 10,000 Installation charges 14,000 Jackson’s policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’s life and then switch to straight line halfway through the equipment’s life. Required: 1. Calculate depreciation for each year of the asset’s eight-year life.

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Ans.
Total cost of equipment = Purchase price + Freight charges + Installation charges
264000 + 10000 + 14000
288000
Double declining balance depreciation   =   Jan. 2018 - Dec. 2021)
Straight line depreciation   =   (Jan. 2022 - Dec. 2025)
Calculation for Double declining balance depreciation:
Double declining balance rate   = 2 * 100 / life
2*100/8
25%
Double-declining balance depreciation:
Book value Depreciation Depreciation Book value
Year (A) Beg. Of the year(B) Rate (C) D = B*C End. Of the year (B-D)
2018 288000 25% 72000 216000
2019 216000 25% 54000 162000
2020 162000 25% 40500 121500
2021 121500 25% 30375 91125
Total               (Accumulated depreciation)        =    196875
*Straight line depreciation = (Remaining book value - Residual value) / Remaining life
(91125 - 63125) / 4
7000
Straight-line depreciation:
Book value Depreciation Book value
Year (A) Beg. Of the year(B) (C) End. Of the year (B-C)
2022 91125 7000 84125
2023 84125 7000 77125
2024 77125 7000 70125
2025 70125 7000 63125
Total (Accumulated depreciation)    =    28000
Total accumulated depreciation = Total of Double declining + Total of Straight-line
196875 + 28000
224875

ekkarill92 answered 1 year ago
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