Question
In: Accounting
On January 1, 2016, Phillips Company made a basket purchase including land, a building and equipment...
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On January 1, 2016, Phillips Company made a basket purchase including land, a building and equipment for $830,000. The appraised values of the assets are $54,000 for the land, $820,000 for the building and $136,000 for equipment. Phillips uses the double declining balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $10,000. The depreciation expense for 2016 for the equipment is |
$68,000.
$34,000.
$27,950.
$55,901.
Solutions
Expert Solution
Equipment value = 136000* [830000/(54000 + 820000 + 136000)]
= 136000* [830000/1010000]
= 136000* .82178
= 111762.38
Declining balance depreciation is calculated by following formula)
Depreciation = Depreciation rate * Book value of asset
Depreciation rate = Accelerator * straight line rate
Straight line rate = 1/ useful life of asset in years
If asset cost is 111762 and its useful life is 4 years then straight line rate will be = ¼
= 0.25
After that we need to calculate Depreciation rate which will be = 0.25*2= 0.5
Depreciation for the first year will be,
Depreciation 1st year = 0.5*111762
= 55881
Option D is closest so option D is correct answer.
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Hope this answer your query.
Feel free to comment if you need further assistance. J
ekkarill92 answered 1 year agoRelated Solutions
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