Question

1.  Computer equipment was acquired at the beginning of year-1 at a cost of $67,000 that has an estimated residual value of $9,000 and an estimated useful life of 5 years (20 points)

1. Determine the 1^stand 2^ndyear's depreciation expense, and accounts balances reported in balance sheets using the straight-line method (10 points).

Depreciation Expense:

Year 1:

Year 2:

Account Balances reported in Balance Sheet

Balance Sheets	12/31/Yr 1	12/31/Yr 2
Equipment	$	$
Accumulated Depreciation	(                                        )	(                                           )
Net Book Value of Equipment	$	$

b. Determine the 1^stand 2^ndyear's depreciation expense, and accounts balances reported in the balance sheets using double-declining-balance method.

Depreciation Expense:

Year 1:

Year 2:

Account Balances reported in Balance Sheet

Balance Sheets	12/31/Yr 1	12/31/Yr 2
Equipment	$	$
Accumulated Depreciation	(                                        )	(                                           )
Net Book Value of Equipment	$	$

Answer 1

Answer

• Working

A	Cost	$            67,000.00
B	Residual Value	$              9,000.00
C=A - B	Depreciable base	$            58,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$            11,600.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

• Requirement [a]

Depreciation Expenses:
year 1 = $ 11600
Year 2 = $ 11600

Balance Sheets	12/31/Yr 1	12/31/Yr 2
Equipment	$ 67000	$ 67000
Accumulated Depreciation	(        $ 11600                                )	(       $ 23,200                                    )
Net Book Value of Equipment	$ 55400	$ 43,800

• Requirement [b]

Depreciation Expenses:
Year 1 = $ 67000 x 40% = $ 26,800
Year 2 = $ (67000 – 26800) x 40% = $ 16,080

Balance Sheets	12/31/Yr 1	12/31/Yr 2
Equipment	$ 67000	$ 67000
Accumulated Depreciation	(        $ 26800                             )	(       $ 42880                                    )
Net Book Value of Equipment	$ 40200	$ 24120