Question

 

On July 1, 20x1, Max company acquired equipment for $1,500,000. Its estimated life was 5 years or 40,000 hours. The residual value was estimated as $100,000.

40. What was the balance in Accumulated Depreciation on December 31, 20x2 if Max company used the S/L method?

A. $140,000

B. $280,000

C. $420,000

D. $560,000

Your answer (A, B, C, or D)

Show your calculation in detail.

41. What was the balance in Accumulated Depreciation on December 31, 20x2 if Max company used the DDB method?

A. $300,000

B. $600,000

C. $780,000

D. None of the above

Your answer (A, B, C, or D)

Show your calculation in detail.

Answer 1

Answer:

40.

Option (B) $280,000

Based on the information available in the question, we can summarize as follows:-

Cost of the equipment - $1,500,000

Estimated Life - 5 years.

Residual Value - $100,000

Depreciation per year under straight line depreciation method :- (

=Cost of the equipment - Salvage/Residule value)/Estimated life of the asset

=($1,500,000 - $100,000)/5 years

=($1,400,000)/5 years

Straight Line Depreciation = $280,000 per year

Depreciation for 2021 (July 01 - December 30) = $280,000 * 6/12 = $140,000 A

Depreciation for 2022 = $280,000 B

A + B = $320,000

Accumulated Depreciation as of 12/31/2022 = $320,000

41.

Option (C) $780,000

Working:

Straight-lime method (SLM) depreciation rate = 1 / 5 = 0.20

So, Double Declining Balance (DDB) depreciation rate = 0.2 x 2 = 0.40 or 40%

(a) DDB depreciation schedule

Year	Cost ($)	Annual Depreciation ($)	Accumulated Depreciation ($)	Balance ($)
2021	1,500,000	300,000   (1,500,000*40%*6/12)	300,000	1,200,000
2022	1,200,000	480,000      (1,200,000*40%)	780,000 (300,000+480,000)	720,000