On August 3, Cinco Construction purchased special-purpose equipment at a cost of $7,304,400. The useful life...
On August 3, Cinco Construction purchased special-purpose equipment at a cost of $7,304,400. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $61,090.
A. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight-line depreciation method (half-year convention).
B. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining-balance method (half-year convention) with a switch to straight-line when it will maximize depreciation expense.
Homework Answers
1) Depreciation expense using Straight line method
Depreciation expense= (Original cost-Residual value)/Estimated useful life
= $(7304400-61090)/8= $905413.75
| Year | Depreciation expense |
| 1 | (905413.75/2)= $452707 |
| 2 | 905414 |
| 3 | 905414 |
| 4 | 905414 |
| 5 | 905414 |
| 6 | 905414 |
| 7 | 905414 |
| 8 | 905414 |
| 9 | (905413.75/2)= $452707 |
| Total | $7243312 |
2) Depreciation rate= 100*2/8= 25%
| Year | Depreciation expense | Ending Book Value |
| 1 | (7304400*25%*1/2)= $913050 | (7304400-913050)= $6391350 |
| 2 | (6391350*25%)= 1597838 | (6391350-1597838)= 4793512 |
| 3 | (4793512*25%)= 1198378 | (4793512-1198378)= 3595134 |
| 4 | (3595134*25%)= 898784 | (3595134-898784)= 2696350 |
| 5 | (2696350*25%)= 674088 | (2696350-674088)= 2022262 |
| 6 | (2022262*25%)= 505566 | (2022262-505566)= 1516696 |
| 7 | 485202 | (1516696-485202)= 1031494 |
| 8 | 485202 | (1031494-485202)= 546292 |
| 9 | 485202 | (546292-485202)= 61090 |
| Total | $7243310 | |
Depreciation under straight line method= $(1516696-61090)/3= $485202
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