Question

A company paid $120,000 for equipment on April 1, 2012. The equipment was expected to have a 10-year useful life and residual value of $20,000. Assume that the company uses DDB for income taxes and straight-line for financial reporting. For each method, calculate depreciation expense for the first two years. (Round your answers to the nearest whole dollar.) Year-end Straight-Line Depreciation for income taxes 24000||| 19200 December 31, 2012 December 31, 2013 10000 10,000 14000 9200 Total The extra depreciation expense over the first two years using DDB (the income tax method) is $23200.

this isn't right but i don't know why

Answer 1

1) Straight line method= $(120000-20000)/10*9/12= $7500

Double declining balance method

Depreciation rate= 100/10*2= 20%

December 31, 2012= $120000*20%*9/12= $18000

December 31, 2013= $(120000*20%*3/12)+(120000*80%*20%*9/12)

= $6000+14400= $20400

Year-end	Depreciation for income tax	Straight-Line
December 31, 2012	$18000	$7500
December 31, 2013	20400	10000
Total	$38400	$17500

The extra depreciation expense over the first two years using DDB method (the income tax method) is $20900 (38400-17500)

2) Original value of the truck= $80000+2200+1200+8600= $92000

Straight line method

Depreciation expense= (Original value-Residual value)/Estimated useful life

= $(92000-8000)/5= $16800

		Depreciation for the Year
Date	Asset Cost	Depreciable Cost		Useful life		Depreciation Expense	Accumulated Depreciation	Book Value
1-2-2018	$92000							$92000
12-31-2018		84000	/	5	=	16800	16800	(92000-16800)= 75200
12-31-2019		84000	/	5	=	16800	(16800+16800)= 33600	(92000-33600)= 58400
12-31-2020		84000	/	5	=	16800	(33600+16800)= 50400	(92000-50400)= 41600
12-31-2021		84000	/	5	=	16800	(50400+16800)= 67200	(92000-67200)= 24800
12-31-2022		84000	/	5	=	16800	(67200+16800)= 84000	(92000-84000)= 8000

Units of production method

Depreciation per unit= $(92000-8000)/140000= $0.60 per unit

		Depreciation for the Year
Date	Asset Cost	Depreciation per unit		Expected units		Depreciation Expense	Accumulated Depreciation	Book Value
1-2-2018	$92000							$92000
12-31-2018		$0.60	*	30000	=	18000	18000	(92000-18000)= 74000
12-31-2019		$0.60	*	30000	=	18000	(18000+18000)= 36000	(92000-36000)= 56000
12-31-2020		$0.60	*	30000	=	18000	(36000+18000)= 54000	(92000-54000)= 38000
12-31-2021		$0.60	*	30000	=	18000	(54000+18000)= 72000	(92000-72000)= 20000
12-31-2022		$0.60	*	20000	=	12000	(72000+12000)= 84000	(92000-84000)= 8000

Double declining balance method

Depreciation rate= 100/5*2= 40%

		Depreciation for the Year
Date	Asset Cost	Book Value		Depreciation Rate		Depreciation Expense	Accumulated Depreciation	Book Value
1-2-2018	$92000							$92000
12-31-2018		92000	*	40%	=	36800	36800	(92000-36800)= 55200
12-31-2019		55200	*	40%	=	22080	(36800+22080)= 58880	(92000-58880)= 33120
12-31-2020		33120	*	40%	=	13248	(58880+13248)= 72128	(92000-72128)= 19872
12-31-2021		19872	*	40%	=	7949	(72128+7949)= 80077	(92000-80077)= 11923
12-31-2022						(84000-80077)= 3923	84000	8000