Question

Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000. The asset is expected to have a service life of 12 years and a residual value of $50,000.

(a) Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method.

(b) Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the- years’-digits method.

(c) Compute the amount of depreciation for each of Years 1 through 3 using the double- declining-balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.)

Answer 1

(a). Straight-line depreciation method;

Cost of equipment is given = $518000

Useful life = 12 years

Residual value = $50000

Annual depreciation will be calculated as follow;

Annual depreciation ($518000 – $50000) / 12 = $39000

Year	Depreciation
1	$39000
2	$39000
3	$39000

(b). Sum-of-the- years’-digits method;

Cost of equipment is given = $518000

Useful life = 12 years

Residual value = $50000

Depreciable value ($518000 - $50000) = $468000

Sum of the Years' Digits = n(n + 1) / 2

Sum of the Years' Digits 12 (12 + 1) / 2 = 78

Year	Depreciable value	Depreciation factor	Calculation	Annual depreciation
1	$468000	12 / 78	($468000 * 12 / 78)	$72000
2	$468000	11 / 78	($468000 * 11 / 78)	$66000
3	$468000	10 / 78	($468000 * 10 / 78)	$60000

(C). Double- declining-balance method;

Cost of equipment is given = $518000

Useful life = 12 years

Residual value = $50000

Annual depreciation will be calculated as follow;

Annual depreciation ($518000 – $50000) / 12 = $39000

Thus rate of depreciation ($39000 / $468000) = 8.3333

Hence, Double-declining rate of depreciation will be (8.3333 * 2) = 16.67%

Year	Book value of equipment	Rate of depreciation	Annual depreciation
1	$518000	16.67%	$86351
2	($518000 - $86351) = $431649	16.67%	$71956
3	($431649 - $71956) = $359693	16.67%	$59961