Question

Required information [The following information applies to the questions displayed below.) At the beginning of Year 1, Copland Drugstore purchased a new computer system for 155,000. It is expected to have a five-year life and a $25,000 salvage value. c. Prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses (1) Straight-line depreciation. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Answer is complete and correct. No Date General Journal Credit Debit 26,000 1 Yr. 1 Depreciation expense Accumulated depreciation 26,000

Answer 1

Ans. C 1	No.	Date	General Journal	Debit	Credit
	1	Year 1	Depreciation expenses	$26,000
			Accumulated depreciation		$26,000
			(Depreciation for Year 1 recorded)
	2	Year 2	Depreciation expenses	$26,000
			Accumulated depreciation		$26,000
			(Depreciation for Year 2 recorded)
	3	Year 3	Depreciation expenses	$26,000
			Accumulated depreciation		$26,000
			(Depreciation for Year 3 recorded)
	4	Year 4	Depreciation expenses	$26,000
			Accumulated depreciation		$26,000
			(Depreciation for Year 4 recorded)
	5	Year 5	Depreciation expenses	$26,000
			Accumulated depreciation		$26,000
			(Depreciation for Year 5 recorded)
Ans. C 2	No.	Date	General Journal	Debit	Credit
	1	Year 1	Depreciation expenses	$62,000
			Accumulated depreciation		$62,000
			(Depreciation for Year 1 recorded)
	2	Year 2	Depreciation expenses	$37,200
			Accumulated depreciation		$37,200
			(Depreciation for Year 2 recorded)
	3	Year 3	Depreciation expenses	$22,320
			Accumulated depreciation		$22,320
			(Depreciation for Year 3 recorded)
	4	Year 4	Depreciation expenses	$8,480
			Accumulated depreciation		$8,480
			(Depreciation for Year 4 recorded)
	*Working Notes:
	Calculations for Depreciation under both methods:
Ans. C1	Straight line depreciation = (Cost of asset - Residual value) / Useful life in years
		($155,000 - $25,000) / 5
		$130,000 / 5
		$26,000
	*In Straight line method the depreciation is equal in each year.
	Year	Depreciation
	1	$26,000
	2	$26,000
	3	$26,000
	4	$26,000
	5	$26,000
Ans. C2	Double declining balance method:
	Double declining balance depreciation rate = 2 * 1 / life of assets
		2 * 1 / 5
		0.40
	*Depreciation = Remaining value at the beginning of the year * Double declining balance depreciation rate
	Year	Value at the beginning (a)	Depreciation (b = a*0.40)	Net book value (a - b)
	1	$155,000	$62,000	$93,000
	2	$93,000	$37,200	$55,800
	3	$55,800	$22,320	$33,480
	4	$33,480	$8,480	$25,000
	*Net book value at the end of year can not be less than the salvage value, so the depreciation would be charged
	only for 4 years. Depreciation for 4th year will be calculated as follows:
	Depreciation =   Remaining value at the beginning - Residual value
		$33,480 - $25,000
		$8,480