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11 July, 08:46

Sandblasting equipment acquired at a cost of $40,000 has an estimated residual value of $8,000 and an estimated useful life of eight years. It was placed into service on April 1 of the current fiscal year, which ends on December 31.

a. Determine the depreciation for the current fiscal year and for the following fiscal year by the straight-line method.

Depreciation

Year 1 $?

Year 2 $?

b. Determine the depreciation for the current fiscal year and for the following fiscal year by the double-declining-balance method.

Depreciation

Year 1 $?

Year 2 $?

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Answers (1)
  1. 11 July, 12:07
    0
    a. $3,000; $4,000

    b. $7,500; $8,125

    Explanation:

    The computation of the depreciation expense under each method is shown below:

    a) Straight-line method:

    = (Original cost - residual value) : (useful life)

    For year 1

    = ($40,000 - $8,000) : (8 years)

    = ($32,000) : (4 years)

    = $4,000

    In the first year, the nine months depreciation would be charged

    = $4,000 * 9 months : 12 months

    = $3,000

    The 9 months is calculated from April 1 to December 31

    In this method, the depreciation is same for all the remaining useful life

    So, in year 2, the depreciation expense is $4,000

    (b) Double-declining balance method:

    First we have to find the depreciation rate which is shown below:

    = Percentage : useful life

    = 100 : 8

    = 12.5%

    So, the rate would be double i. e 25%

    In year 1, the original cost is $40,000, so the depreciation expense is

    = $40,000 * 25% * 9 months : 12 months

    = $7,500

    The 9 months is calculated from April 1 to December 31

    And, in year 2, the depreciation expense would be

    = ($40,000 - $7,500) * 25%

    = $8,125
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