Rembrandt Company acquired a plant asset at the beginning of Year 1. The asset h
ID: 2467949 • Letter: R
Question
Rembrandt Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.
Year
Straight-Line
Sum-of-the-
Years'-Digits
Double-Declining-
Balance
What is the cost of the asset being depreciated?
What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
Which method will produce the highest charge to income in Year 1?
Which method will produce the highest charge to income in Year 4?
Which method will produce the highest book value for the asset at the end of Year 3?
If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?
Year
Straight-Line
Sum-of-the-
Years'-Digits
Double-Declining-
Balance
Explanation / Answer
What is the cost of the asset being depreciated?
Cost of the asset being depreciated = Total Accumulated Depreciation
Cost of the asset being depreciated = $ 78750
What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
Salvage value for this asset = 0
Which method will produce the highest charge to income in Year 1?
Double-Declining- Balance method will produce the highest charge to income in Year 1
Which method will produce the highest charge to income in Year 4?
Straight-Line method will produce the highest charge to income in Year 4
Which method will produce the highest book value for the asset at the end of Year 3?
Book Value at the end of year 3 using straight line = Cost - Accumulated Depreciation till year 3
Book Value at the end of year 3 using straight line = 78750 - (15750+ 15750 + 15750)
Book Value at the end of year 3 using straight line = 31500
Book Value at the end of year 3 using Sum-of-the-Years'-Digits = Cost - Accumulated Depreciation till year 3
Book Value at the end of year 3 using Sum-of-the-Years'-Digits = 78750 - (26250+21000+15750)
Book Value at the end of year 3 using Sum-of-the-Years'-Digits = 15750
Book Value at the end of year 3 using Double-Declining- Balance = Cost - Accumulated Depreciation till year 3
Book Value at the end of year 3 using Double-Declining- Balance = 78750 - (35000+21000+12600)
Book Value at the end of year 3 using Double-Declining- Balance = 10150
Answer
straight line method will produce the highest book value for the asset at the end of Year 3
If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?
Highest gain (or lowest loss) on disposal of the assetat the end of Year 3 which has lower book value
Answer
Double-Declining- Balance method would yield the highest gain (or lowest loss) on disposal of the asset