Homework Answers
Question 1 Straight Line Method
Cost of Equipment = $90,000
Salvage Value = $5,000
Life of Equipment = 5 years
Therefore Yearly depreciation under straight line method = (Original Cost - Salvage Value) / Life of the asset
= (90000-5000)/5
= 17000 per year
12/31/2020 Depreciation Expense = $17,000
12/31/2021 Depreciation Expense = $17,000
12/31/2021 Book Value = $56,000 (90,000 - 17000 - 17000)
Question 2 Units of Activity Method
Cost of Equipment = $90,000
Salvage Value = $5,000
Total estimated activity level during the life time = 100,000 units
Units produced in 2020 = 16000 units
Units produced in 2020 = 24000 units
Depreciation for a year = 
12/31/2020 Depreciation Expense = $ 13,600 [(90000-5000)*16000/100000]
12/31/2021 Depreciation Expense = $20,400 [(90000-5000)*24000/100000]
12/31/2021 Book Value = $56,000 (90,000 - 13600 - 20400)
Question 2 Double Declining Balance Method
Depreciation = 2 * Straight Line Depreciation Rate * Book Value at the beginning of the year
Straight Line Depreciation Rate = 100%/5 years = 20%
Book Value at the beginning = 90000
12/31/2020 Depreciation Expense = $ 36,000 [2 * 20% * 90000 ]
12/31/2021 Depreciation Expense = $21,600 [2 * 20% * (90000-36000)]
12/31/2021 Accumulated Depreciation = $ 57,600 (36000 + 21600)
12/31/2021 Book Value = $32,400 (90,000 - 57600)
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EXERCISE #3 (DEPRECIATION METHODS) (15 pts.) Dougan Company purchased equipment on January 1, 2020 for $90,000....
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