Question

Koffman’s Warehouse purchased a forklift on January 1, 2016, for $5,000. The forklift is expected to last for five years and have a residual value of $500. Koffman’s uses the doubledeclining- balance method for depreciation.

Required: 1. Calculate the depreciation expense, accumulated depreciation, and book value for each year of the forklift’s life.

2. Prepare the journal entry to record depreciation expense for 2016.

3. Refer to Exhibit 8-2. What factors may have influenced Koffman to use the double-declining balance method?

Answer 1

Answer :

1. Calculation of the depreciation expense, accumulated depreciation, and book value for each year of the forklift’s life :

Double declining depreciation rate = 100% / useful life x 2

= 100% / 5 years x 2

= 40%

Depreciation Schedule :

Year	Beginning Book value (a)	Rate (b)	Depreciation expense (c)	Accumulated Depreciation (d)	Ending Book Value (e)
			(a x b)		(a - c)
2016	$5,000	40%	$2,000	$2,000	$3,000
2017	$3,000	40%	$1,200	$3,200 ($2,000 + $1,200)	$1,800
2018	$1,800	40%	$720	$3,920 ($3,200 + $720)	$1,080
2019	$1,080	40%	$432	$4,352 ($3,920 + $432)	$648
2020	$648	40%	$148 ($648 - $500)	$4,500 ($4,352 + $148)	$500

In Double declining depreciation method, ending book value is always equal to the residual value of asset. So, depreciation for Year 2020 is considered after taking the difference of beginning book value and scrap value.

2. The journal entry to record depreciation expense for 2016 :

Date	Account, title and Explanation	Debit	Credit
December 31, 2016	Depreciation expense	$2,000
	Accumulated Depreciation		$2,000
	(Being depreciation charged for the year)

3.  Exhibit 8-2 is not available.