Question

Bonita Company purchased a new plant asset on April 1, 2020, at a cost of $738,000. It was estimated to have a service life of 20 years and a salvage value of $53,400. Bonita' accounting period is the calendar year. Compute the depreciation for this asset for 2020 and 2021 using the sum-of-the-years'-digits method. (Round answers to O decimal places, e.g. 45,892.) Depreciation for 2020 $ Depreciation for 2021 $ e Textbook and Media Compute the depreciation for this asset for 2020 and 2021 using the double-declining-balance method. (Round answers to O decimal places, e.g. 45,892.) Depreciation for 2020 $ Depreciation for 2021 $

Answer 1

Correct Answer:

Requirement 1:

Year	Depreciation expense
2020	$       48,900.00
2021	$           61,940.00

Working:

Sum-of-the-Years'-Digits Method
A	Cost	$   738,000.00
B	Residual Value	$     53,400.00
C=A - B	Depreciable base	$   684,600.00
	Sum of digits with 5 years (1+2+3+ …. +20)	210

Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
2020	$       684,600.00	((684600/210*20)/12)*9	$           48,900.00	$      48,900.00	$            689,100.00
2021	$            689,100.00	(684600/210*19	$           61,940.00	$   110,840.00	$            627,160.00

Depreciation expense for year 2020 = since the machine is purchased on 1 april,2020 and the company’s year-end on December 31^st therefore there will be 9 months in the first year for calculating depreciation.

((684600/210*20)/12)*9

((3,260.00 * 20)/12)*9

(65,200.00/12)*9

5,433.33 * 9

Depreciation expense for the year 2020 = $      48,900.00

Requirement 2:

Year	Depreciation expense
2020	$                 55,350
2021	$                 66,420

Working:

Double declining Method
A	Cost	$   738,000.00
B	Residual Value	$     53,400.00
C=A - B		$   684,600.00
D	Life [in years]	20
E=C/D	Annual SLM depreciation	$     34,230.00
F=E/C	SLM Rate	5.00%
G=F x 2	DDB Rate	10.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$             738,000	10.00%	$                 55,350	$         682,650	$                     55,350
2	$             682,650	10.00%	$                 68,265	$         614,385	$                  123,615

Depreciation expense for year 2020 = since the machine is purchased on 1 April, 2020 and the company’s year-end on December 31^st therefore there will be 9 months in the first year for calculating depreciation.

Double declining balance depreciation expense for the year 2020 = (738,000 * 10%)/12 *9

73,800 / 12 * 9

= 6,150 * 9

= $ 55,350

End of answer.

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