Question

1.) Company Zeta bought new office furniture in the year 2000. The purchase cost was 62426 dollars and in addition it had to spend 14941 dollars for installation. The furniture has been in use since April 21st, 2000. Zeta forecasted that in 2015 the office furniture would have a net salvage value of $1000. Using the US Accelerated Depreciation Schedule, estimate the value of depreciation recorded in the accounting books in the year 2004 if the company decided to sell the furniture on June 5th (of 2004). (note: round your answer to the nearest cent and do not include spaces, currency signs, or commas)

ANSWER: 3454.44

2.) Company Omega bought new petroleum refining equipment in the year 2000. The purchase cost was 174324 dollars and in addition it had to spend 14582 dollars for installation. The refining equipment has been in use since February 1st, 2000. Omega forecasted that in 2030 the equipment would have a net salvage value of $10,000. Using the US Straight Line Depreciation Schedule, estimate the value of depreciation recorded in the accounting books in the year 2004 if the company decided to sell the equipment on August 5th (of 2004). (note: round your answer to the nearest cent and do not include spaces, currency signs, or commas)

ANSWER: 9445.3

Answer 1

1. Zeta

Accelerated depreciation is any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. The double declining balance method of depreciation, also known as the 200% declining balance method of depreciation, is a common form of accelerated depreciation. Book value is an asset's cost minus its accumulated depreciation. The asset's book value will decrease when the contra asset account Accumulated Depreciation is credited with the depreciation expense of the accounting period.

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

Since, it is Double Declining method the Accelerator is 2.

At the end of 2004 book value of the asset = $45,327

Depreciation percent = 13.33%

Therefore, the Depreciation expense for 2004 = 45,327*13.33% = 6,042

If the asset is planning to sold in the middle of the year that is on June 5th then the depreciation to be expensed in accounting books is 6,402/2 = 3,021.

2. Omega

While the straight-line depreciation method spreads the cost evenly over the life of an asset, an accelerated depreciation method allows the deduction of higher expenses in the first years after purchase and lower expenses as the depreciated item ages.

Depreciable amount equals cost minus salvage value. Cost is the amount at which the fixed asset is capitalized. Salvage value (also called residual value or scrap value) is the estimated value of the fixed asset at the end of its useful life.

Depreciation Expense: Straight-line Method =	Depreciable Amount
	Useful Life

In the given case

Depreciable amount = 188,906-10,000=178,906

And Depreciation expense = 178,906/30(useful life) = 5963.5

If the asset is planning to sold in August month then the depreciation to be expensed in accounting books is 5964/12 = 496*8 = 3,975