Problem 8-32 Depreciation Methods Development Industries purchased a depreciable
ID: 2521603 • Letter: P
Question
Problem 8-32
Depreciation Methods
Development Industries purchased a depreciable asset for $50,000 on January 1, 2012. The asset has a five-year useful life and a $10,000 estimated salvage value. The company will use the straight-line method of depreciation for book purposes. However, Development will use the double-declining-balance method for tax purposes. Assume a tax rate of 30%.
Required:
a. Prepare depreciation schedules using the straight-line method of depreciation for the useful life of the asset.
Development Industries - title of part a
Depreciation Schedule - title of part a
Straight Line Method - title of part a
Year
Depreciation Expense
Accumulated Depreciation
Net Book Value
2012
$
$
$
2013
2014
2015
2016
Prepare depreciation schedules using the double-declining-balance method of depreciation for the useful life of the asset.
Development Industries - these are all titles once again
Depreciation Schedule
Double-Declining-Balance Method
Year
Depreciation Expense
Accumulated Depreciation
Net Book Value
2012
$
$
$
2013
2014
2015
2016
b. Calculate the 2012 tax savings from the use of the accelerated depreciation method for tax purposes.
$____
c. Under the straight-line method of depreciation, what is the gain or loss if the equipment is sold at the end of 2014 for $30,000? Enter your answers as positive values only.
Select (Is either: Gain or Loss) is $____
Under the straight-line method of depreciation, what is the gain or loss if the equipment is sold at the end of 2015 for $16,000?
Select (Is either: Gain or Loss) is $____
d. A gain or loss on disposal of equipment, and depreciated expense are all reported on the Select: (Balance sheet, or Income statement, or Statement of cash flows, or Statement of retained earnings) . The gain on disposal of equipment is reported as Select: (Gross profit, or Operating expenses, or Operating revenues, or Other expenses, or Other revenues, or Current liabilities) and a loss is reported as Select: (Income taxe expense, or Operating expenses, or Operating revenues, or Other expenses, or Gross profit, or Current assets). Depreciation expense is reported among Select: (Income tax expense, or Operating expenses, or Operating revenues, or Other expenses, or Gross profit, or Retained earnings).
a. Prepare depreciation schedules using the straight-line method of depreciation for the useful life of the asset.
Development Industries - title of part a
Depreciation Schedule - title of part a
Straight Line Method - title of part a
Year
Depreciation Expense
Accumulated Depreciation
Net Book Value
2012
$
$
$
2013
2014
2015
2016
Explanation / Answer
Depreciation Schedule - title of part a Straight Line Method - title of part a SLM dep per year=(50000-10000)/5 8000 Year Beg book value Depreciation Expense Accumulated Depreciation Net Book Value 2012 $50,000 $8,000 $8,000 $42,000 2013 $42,000 $8,000 $16,000 $34,000 2014 $34,000 $8,000 $24,000 $26,000 2015 $26,000 $8,000 $32,000 $18,000 2016 $18,000 $8,000 $40,000 $10,000 ans 2 DDB rate= 1/5*200% 40 Year Beg book value B*40% Dep Rate Depreciation Expense B*40% Accumulated Depreciation Net Book Value 2012 $50,000 40% $20,000 $20,000 $30,000 2013 $30,000 40% $12,000 $32,000 $18,000 2014 $18,000 40% $7,200 $39,200 $10,800 2015 $10,800 40% $4,320 $43,520 $6,480 2016 $6,480 40% $2,592 $46,112 $3,888 ans b Tax saving Tax saving on double declining method 20000*30% $6,000 Tax saving as per SLM(8000*30%) $2,400 Net tax saving $3,600 ans c 2014 sales price $30,000 Book value at the end of 2014 $26,000 Gain $4,000 2015 sales price $16,000 Book value at the end of 2015 $18,000 Loss ($2,000) ans d A gain or loss on disposal of equipment, and depreciated expense are all reported on Income statement The gain on disposal of equipment is reported a Other Revenue Loss is reported as Other expenses Depreciation expense is reported among Operating expenses