Question

NewTech purchases computer equipment for $258,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $26,000. Exercise 8-7 Straight-line depreciation LO P1 Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation Straight Line Depreciation Choose Numerator: Choose Denominator: Annual Depreciation Expense - Depreciation expense Year Annual Depreciation Year-End Book Value Year Year 2 Year 3 Year 4 Total

Answer 1

Ans. A	Straight line depreciation = (Cost of asset - Residual value) / Useful life in years
		($258,000 - $26,000) / 4
		$232,000 / 4
		$58,000
	*In Straight line method the depreciation is equal in each year.
	Year	Annual Depreciation	Net book value
	1	$58,000	$200,000
	2	$58,000	$142,000
	3	$58,000	$84,000
	4	$58,000	$26,000
	Calculations for Year End Book Value:
	Year		Net book value
	1	$258,000 - $58,000	$200,000
	2	$200,000 - $58,000	$142,000
	3	$142,000 - $58,000	$84,000
	4	$84,000 - $58,000	$26,000
Ans. 2	Double declining balance method:
	Double declining balance depreciation rate = 2 * 1 / life of assets
		2 * 1 / 4
		0.50
	*Depreciation = Remaining value at the beginning of the year * Double declining balance depreciation rate
	Year	Beginning year	Depreciation	Annual	Accumulated	Year End
		book value (a)	Rate (b)	Depreciation (a*b)	Depreciation	book value (a - b)
	1	$258,000	0.50	$129,000	$129,000	$129,000
	2	$129,000	0.50	$64,500	$193,500	$64,500
	3	$64,500	0.50	$32,250	$225,750	$32,250
	4	$32,250	0.50	$6,250	$232,000	$26,000
	* Accumulated depreciation for current year = Current year depreciation + Previous year accumulated depreciation
	*In double declining balance method the book value at the end of year is the residual value of the assets, so the depreciation
	would be calculated by the following way:
	Depreciation =   Remaining value at the beginning - Residual value
		$32,250 - $26,000   =   $6,250