QUESTION 2 Not complete Marked out of 22.00 Flag question Computing Straight-Lin
ID: 2328501 • Letter: Q
Question
QUESTION 2 Not complete Marked out of 22.00 Flag question Computing Straight-Line and Double-Declining-Balance Depreciation On January 2, Reed Company purchases a laser cutting machine for use in fabrication of a part for one of its key products. The machine cost $75,000, and its estimated useful life is five years, after which the expected salvage value is $5,000. For both parts (a) and (b) below: (1) Compute depreciation expense for each year of the machine's five-year useful life under that depreciation method. (2) Use the financial statements effects template to show the effect of depreciation for the first year only for that method (a) Straight-line per yea Use negative signs with answers below, when appropriate Balance Sheet Noncash Contributed Transaction Cash Asset+ Assets Liabilities+Capital Record first year depreciation Income Statement Net Income RevenueE Expenses IExplanation / Answer
Part a
Straight line Method
A
Cost
$ 75,000.00
B
Residual Value
$ 5,000.00
C=A – B
Depreciable base
$ 70,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 14,000.00
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 75,000.00
$ 14,000.00
$ 61,000.00
$ 14,000.00
2
$ 61,000.00
$ 14,000.00
$ 47,000.00
$ 28,000.00
3
$ 47,000.00
$ 14,000.00
$ 33,000.00
$ 42,000.00
4
$ 33,000.00
$ 14,000.00
$ 19,000.00
$ 56,000.00
5
$ 19,000.00
$ 14,000.00
$ 5,000.00
$ 70,000.00
Answer (a) ----Straight Line Depreciation is $14000 per year
Accounting Equation
Balance Sheet
Income Statement
Transaction
Cash Asset+
Non cash Asset=
Liabilities+
Contributed Capital.
Revenue-
Expense=
Net Income
Depreciation
$ 61,000.00
$ 75,000.00*
$14,000.00
$ -14,000.00
*$75000 is assumed to be contributed capital just to match the accounting equation. This amount may also be excluded before submitting final answer.
Part b
Double Declining Balance Method
A
Cost
$ 75,000.00
B
Residual Value
$ 5,000.00
C=A - B
Depreciable base
$ 70,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 14,000.00
F=E/C
SLM Rate
20.00%
G=F x 2
DDB Rate
40.00%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 75,000.00
40.00%
$ 30,000.00
$ 45,000.00
$ 30,000.00
2
$ 45,000.00
40.00%
$ 18,000.00
$ 27,000.00
$ 48,000.00
3
$ 27,000.00
40.00%
$ 10,800.00
$ 16,200.00
$ 58,800.00
4
$ 16,200.00
40.00%
$ 6,480.00
$ 9,720.00
$ 65,280.00
5
$ 9,720.00
40.00%
$ 4,720.00**
$ 5,000.00
$ 70,000.00
**In year 5 Depreciation will be an amount which makes book value to be equal to Residual value.
Answer (b)
Double declining Balance Method
Year
Depreciation Expense
1
$ 30,000.00
2
$ 18,000.00
3
$ 10,800.00
4
$ 6,480.00
5
$ 4,720.00
Accounting Equation
Balance Sheet
Income Statement
Transaction
Cash Asset+
Non cash Asset=
Liabilities+
Contributed Capital.
Revenue-
Expense=
Net Income
Depreciation
$ 45,000.00
$ 75,000.00***
$30,000.00
$ -30,000.00
***$75000 is assumed to be contributed capital just to match the accounting equation. This amount may also be excluded before submitting final answer.
Straight line Method
A
Cost
$ 75,000.00
B
Residual Value
$ 5,000.00
C=A – B
Depreciable base
$ 70,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 14,000.00