Question

11 Coronado Company purchases equipment on January 1, Year 1, at a cost of $540,000. The asset is expected to have a service life of 12 years and a salvage value of $48,600. Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. (Round answers to 0 decimal places, e.g. 5,125.) Depreciation for Year 1 $enter a dollar amount rounded to 0 decimal places Depreciation for Year 2 $enter a dollar amount rounded to 0 decimal places Depreciation for Year 3 $enter a dollar amount rounded to 0 decimal places Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years'-digits method. Depreciation for Year 1 $enter a dollar amount Depreciation for Year 2 $enter a dollar amount Depreciation for Year 3 $enter a dollar amount Compute the amount of depreciation for each of Years 1 through 3 using the double-declining-balance method. (Round depreciation rate to 2 decimal places, e.g. 15.84%. Round answers to 0 decimal places, e.g. 45,892.) Depreciation for Year 1 $enter a dollar amount rounded to 0 decimal places Depreciation for Year 2 $enter a dollar amount rounded to 0 decimal places Depreciation for Year 3 $enter a dollar amount rounded to 0 decimal places

Answer 1

• All working forms part of the answer
• Straight line method

A	Cost	$          540,000.00
B	Residual Value	$            48,600.00
C=A - B	Depreciable base	$          491,400.00
D	Life [in years]	12
E=C/D	Annual SLM depreciation	$            40,950.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$           540,000.00	$            40,950.00	$       499,050.00	$             40,950.00
2	$           499,050.00	$            40,950.00	$       458,100.00	$             81,900.00
3	$           458,100.00	$            40,950.00	$       417,150.00	$           122,850.00

• Sum of Years digit

A	Cost	$          540,000.00
B	Residual Value	$            48,600.00
C=A - B	Depreciable base	$          491,400.00
1+2+3+4+5+6+7+8+9+10+11+12	Sum of digits	78

Year	Depreciable base	Formula	Depreciation expense
1	$           491,400.00	[491400 x 12/78]	$         75,600.00
2	$           491,400.00	[491400 x 11/78]	$         69,300.00
3	$           491,400.00	[491400 x 10/78]	$         63,000.00

• Double Declining rate

A	Cost	$          540,000.00
B	Residual Value	$            48,600.00
C=A - B	Depreciable base	$          491,400.00
D	Life [in years]	12
E=C/D	Annual SLM depreciation	$            40,950.00
F=E/C	SLM Rate	8.33%
G=F x 2	DDB Rate	16.67%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value
1	$           540,000.00	16.67%	$         90,018.00	$           449,982.00
2	$           449,982.00	16.67%	$         75,012.00	$           374,970.00
3	$           374,970.00	16.67%	$         62,507.50	$           312,462.50