Question

Required information Use the following information for the Exercises below. The following information applies to the questions displayed below In early January 2017, NewTech purchases computer equipment for $257,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $24,000. Exercise 8-7 Straight-line depreciation LO P1 Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation. Straight-Line Depreciation Annual Depreciation Expense Choose Denominator: Choose Numerator: Depreciation expense 0 Year-End Book Value Annual Depreciation Year 2017 2018 2019 2020 0 Total $

Answer 1

8-7

Depreciable cost = Cost of equipment - Salvage value

= 257,000 - 24,000

= $233,000

Depreciable cost	/	Useful life	=	Depreciation expense
233,000	/	4	=	$58,250

Year	Annual depreciation	Year end book value
2017	$58,250	257,000- $58,250 = $198,750
2018	$58,250	$198,750 - $58,250 = $140,500
2019	$58,250	$140,500 - $58,250 = $82,250
2020	$58,250	$82,250 - $58,250 = $24,000
Total	$233,000

8-8

Double declining depreciation rate = 2 x 1/Useful life

= 2 x 1/4

= 50%

	Depreciation for the period			End of period
Year	Beginning year book value	Depreciation rate	Annual depreciation	Accumulated depreciation	Year end book value
2017	257,000	50%	257,000 x 50% = 128,500	128,500	257,000 - 128,500 = 128,500
2018	128,500	50%	128,500 x 50% = 64,250	128,500 + 64,250 = 192,750	128,500 - 64,250 = 64,250
2019	64,250	50%	64,250 x 50% = 32,125	192,750 + 32,125 = 224,875	64,250 - 32,125 = 32,125
2020	32,125		8,125	233,000	24,000
Total			$233,000

In the year 2020, depreciation will be calculated as the difference between Beginning year book value and Year end book value i.e. 32,125 - 24,000 = $8,125

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