Question

Gandolfi Construction Co. purchased a CAT 336DL earth mover at a cost of $1,000,000 in January 2019. The company's estimated useful life of this heavy equipment is 8 years, and the estimated salvage value is $200,000. Required: a. Using straight-line depreciation, calculate the depreciation expense to be recognized for 2019, the first year of the equipment's life, and calculate the equipment's net book value at December 31, 2021, after the third year of the equipment's life. Depreciation expense Net book value b. Using declining balance depreciation at twice the straight-line rate, calculate the depreciation expense to be recognized for 2021, the third year of the equipment's life. Double-declining rate Depreciation expense

Answer 1

^{​​​​​​a. Straight line depreciation expense per year = (Cost - salvage value) / Years}

^{= ($1,000,000 - $200,000) / 8 years}

^{= $100,000}

^{Depreciation expense for year 2019 = $100,000}

^{Accumulated Depreciation for 3 years = 3 * $100,000}

^{= $300,000}

^{Net book value at December 31, 2021 = Cost - Accumulated depreciation}

^{= $1,000,000 - $300,000}

^{= $700,000}

Depreciation expense	$100,000
Net book value	$700,000

2.

Double Declining rate = Straight line depreciation rate *2

Straight line depreciation rate = 100 / 8

= 12.5%

Double Declining rate = 12.5% * 2

= 25%

First year depreciation expense = Cost * 25%

= $1,000,000 * 25%

= $250,000

Second year depreciation expense = ($1,000,000 - $250,000) * 25%

= $187,500

Third year depreciation expense = ($1,000,000 - $250,000 - $187,500) * 25%

= $140,625

Double Declining rate	25%
Depreciation expense	$140,625