Question

Required information Exercise 8-9A Computing and recording straight-line versus double-declining balance depreciation LO 8. 2,8-3 rt 2 of 2 The following information applies to the questions displayed below) At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $52,000. It is expected to have a five-year life and a $7,000 salvage value. eBook Exercise 8.9A Part b References b. Record the purchase of the computer system and the depreciation expense for the first year under straight-line and double- declining balance methods in a financial statements model. (In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (1A), a financing activity (FA) and net change in cash (NC). Enter any decreases to account balances and cash outflows with a minus sign. Not all cells in the "Statement of Cash Flows" column may require an input. leave cells blank if there is no corresponding input needed.) COPELAND DRUGSTORE Horizontal Statements Model Balance Sheet Income Statement Stockholders Assets Equity Revenue - Expenses - Net Income Book Value Retained of Computer Earnings Statement of Cash Flows Cash Straight Line Depreciation Double Declining Balance Depreciation

Answer 1

WORKING NOTES
	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD
	Purchase Cost of Computer	$ 52,000
	Less: Salvage Value	$   7,000
	Net Value for Depreciation	$ 45,000
	Usefule life of the Assets	5 years
	Depreciation per year = Value for Depreciation / 5 years =	$   9,000
	Depreciation for year 1 =	$   9,000
WORKING NOTES
	CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD FOR TRACTOR
	Rate of Depreciation ( 1 / Life of Computer) = 1 / 5 Year =	20%
	Double decline rate of depreciation = 20% X 2 =	40%
	CALCULATION OF DEPRECIATION:
	Purchase value of Computer	$ 52,000
	Depreciation of first year @ 40%	$ 20,800
	Closing balance	$ 31,200
	Depreciation for year 1 =	$ 20,800
SOLUTION:
	COPELAND DRUGSTORE
	HORIZONTAL STATEMENT MODEL
	ASSETS				STOCKHOLDER'S EQUITY	INCOME STATEMENT
	CASH	+	Book Value of Computer	=	Retained Earnings	Revenues	-	Expenses	=	Net Income	Statement of Cash Flows
	Purchase of Computer
	$ - 52,000	+	$               52,000.0	=	$                                  -	$                       -	-	$                       -	=	$                               -	Invesing Activity	$ -52,000.0
	Straight line method
	$ - 0	+	$                            -	=	$                     -9,000.0	$                       -	-	$            9,000.0	=	$                   -9,000.0	Operating activity	$      9,000.0
	Double - Decline Balance Method
	$ - 0	+	$                            -	=	$                   -20,800.0	$                       -	-	$          20,800.0	=	$                -20,800.0	Operating activity	$    20,800.0