Suarez Company uses the straight-line method of depreciation. The company purcha
ID: 2465924 • Letter: S
Question
Suarez Company uses the straight-line method of depreciation. The company purchased a computer system on January 1, Year 1, for $1,600,000 with an expected life of six years and a salvage value of $130,000. Assuming the computer is sold on July 1, Year 3 for $1,000,000 cash, prepare the Journal entries to record depredation for the first 6 months of Year 3 and the sale of the computer. A new machine costing $1,800,000 cash and estimated to have a $60,000 salvage value was purchased on January 1. The machine is expected to produce 600,000 units of product during its 8-year useful life. Calculate the depreciation expense in the first year under the following independent situations: The company uses the units-of-production method and the machine produces 70,000 units of product during its first year. The company uses the double-declining-balance method. The company uses the straight-line method.Explanation / Answer
Answer 1 Depreciation under straight line method = (Cost of an asset - salvage value of an asset) / useful life of an asset Depreciation under straight line method = (1600000 - 130000) / 6 = $245000 a year Depreciation for 6 months = $245000 / 2 = $122500 Journal Entries Date Account Title Debit Credit July 1 , Year 3 Depreciation 1,22,500 Accumulated depreciation 1,22,500 (Depreciation recorded for 6 months) July 1 , Year 3 Cash 10,00,000 Accumulated Depreciation 6,12,500 Computer system 16,00,000 Profit on sale 12,500 (Sale of computer system) Answer 2 Depreciation under units of production method = (Cost of an asset - salvage value of an asset) / no.of units to be produced during useful life Depreciation under units of production method = (1800000 - 60000) / 600000 = $2.9 per unit No.of units produced during 1st Year = 70000 units Depreciation for 1st Year = 70000 units * $2.90 = $203000 Depreciation under double declining balance method = 2 * Straight-line depreciation rate × Book value at the beginning of the year Straight line depreciation = (1800000 - 60000) / 8 = $217500 per year Straight line depreciation rate = (217500 / 1800000 )*100 = 12.08% Depreciation under double declining balance method = 2 x 12.08% × 1800000 = $434880 Depreciation under straight line method = (Cost of an asset - salvage value of an asset) / useful life of an asset Straight line depreciation = (1800000 - 60000) / 8 = $217500 per year