Question

On July 1, 2020, Martinez Company purchased for $4,680,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $195,000. Depreciation is taken for the portion of the year the asset is used Complete the form below by determining the depreciation expense and year-end book values for 2020 and 2021 using the 1. sum-of-the-years'-digits method 2. double-declining balance method 2020 2021 Sum-of-the-Years'-Digits Method Equipment $4,680,000 $4,680,000 Less: Accumulated Depreciation Year-End Book Value Depreciation Expense for the Year Double-Declining Balance Method $4,680,000 Equipment $4,680,000 Less: Accumulated Depreciation Year-End Book Value Depreciation Expense for the Year

Answer 1

	Sum of the years digits method
				2020	2021
	Equipment			$ 4,680,000.00	$ 4,680,000.00
Less:	Accumulated depreciation			$    747,500.00	$ 2,093,000.00
	Year End Book value			$ 3,932,500.00	$ 2,587,000.00
	Depreciation Expense			$    747,500.00	$ 1,345,500.00

Workings:

Cost of the equipment			$ 4,680,000.00
Salvage value			$    195,000.00
Depreciable cost			$ 4,485,000.00
Sum of the digits			15	(5 + 4 + 3 + 2 + 1)
Depreciation for 2020 =			$ 4485000 x 5/15 x 6/12
		=	$    747,500.00
Depreciation for 2021 =			$ 4485000 x 5/15 x 6/12 + $ 4485000 x 4/15 x 6/12
		=	$ 1,345,500.00

	Double Declining Balance
				2020	2021
	Equipment			$ 4,680,000.00	$ 4,680,000.00
Less:	Accumulated depreciation			$    936,000.00	$ 2,433,600.00
	Year End Book value			$ 3,744,000.00	$ 2,246,400.00
	Depreciation Expense			$    936,000.00	$ 1,497,600.00

Workings:

Cost of the equipment			$ 4,680,000.00
Useful Life			5
Depreciation Rate			(100% / 5 years) x 2
		=	40%
Depreciation for 2020 =			$ 4680000 x 40% x 6/12
		=	$    936,000.00
Depreciation for 2021 =			($ 4680000 - $ 936000) x 40%
		=	$ 1,497,600.00

Straight Line
Cost of the equipment			$ 4,680,000.00
Salvage value			$    195,000.00
Depreciable cost			$ 4,485,000.00
Useful Life			5	years
Depreciation per year			$    897,000.00
Book value of the equipment			$ 4485000 - ($ 448500 + $ 897000)
(at the beginning of 2022)			$ 3,139,500.00
Revised salvage value			$    260,000.00
Depreciable cost			$ 2,879,500.00
Remaining useful life			2	years
Depreciation expense			$ 1,439,750.00