Rembrandt Company acquired a plant asset at the beginning of Year 1. The asset h
ID: 2477509 • 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
answer the following questions using the table below.
a. What is the cost of the asset being depreciated
b. What amount, if any, was used in the depreciation calculations for the salvage value for this asset? (Round answer to 0 decimal places, e.g. 45,892.)
c. Which method will produce the highest charge to income in Year 1?
d. Which method will produce the highest charge to income in Year 4?
e. Which method will produce the highest book value for the asset at the end of Year 3
f. 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
Year
Straight-Line
Sum-of-the-
Years'-Digits
Double-Declining-
Balance
Explanation / Answer
a)
Cost = $95,500
If there is any salvage value and the amount is unknown (as is the case here), the cost would have to be determined by looking at the data for the double-declining balance method.
100% / 5 = 20%
Double declining rate = 20% * 2 = 40%
The 1st year depriciation Will be = Cost * 40% = $38,200
Therefore Cost = $38,200 / 0.40 = $95,500
b)
Salvage = Cost - Total Depriciation
Salvage Value = $95,500 - $85,950 = $9,550
c)
Double-declining balance method
d)
Straight-line method
e)
Straight-line method will provide highest book value at the end of 3rd year
St.-line = $95,500 - ($17,190 + $17,190 + $17,190) = $43,930 Book Value
Sun of the year = $95,500 - ($28,650 + 22,920 + 17,190) = $26,740 Book Value
Double dec = $95,500 - ($38,200+ 22,920 + 13,752) = $20,628 Book Value
f)
Double-declining balance method,
Because the total depriciation upto the end of 3r year is more in double declining rate