Question

A company paid $120,000 for equipment on April 1, 2012. The equipment was expected to have a 10-year useful life and residual value of $20,000. Assume that the company uses DDB for income taxes and straight-line for financial reporting. For each method, calculate depreciation expense for the first two years. (Round your answers to the nearest whole dollar.) Depreciation for Year-end income taxes Straight-Line 24000|| 10000 December 31, 2012 December 31, 2013 19200 10.000 14000|| 9200 Total The extra depreciation expense over the first two years using DDB (the income tax method) is $23200).

Answer 1

	Year - end	Depreciation for Income taxes	Straight- Line
	December 31, 2012	$     24,000	$                         10,000
	December 31, 2013	$     19,200	$                         10,000
	Total	$     43,200	$                         20,000
	The extra depreciation	=	$                         23,200
	Workings:
	Double - declining balance method:-
	Double declining rate	=	(100%/ 10 years) X 2
		=	20%
Year	Beginning of period book value	Depreciation rate	Depreciation expense	Accumulated depreciation	Book value
2012	$                                                        1,20,000	20%	$                         24,000	$     24,000	$     96,000
2013	$                                                            96,000	20%	$                         19,200	$     43,200	$     76,800
	Straight Line method:-
	Straight Line		$                         10,000	per year
	Workings:
	Depreciation expense	=	(Cost - Residual value) / useful value
		=	($120000 - $20000) / 10 years
		=	$                         10,000