Question

At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $225,000. It is expected to have a five-year life and a $35,000 salvage value. Exercise 8-9A Part b 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 (IA), a financing activity (FA) and net change in cash (NC). Enter any decreases to account balances and cesh outflows with a minus sign. Not all cells in the "Statement of Cosh 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 Equity Retained Earnings Statement of Cash Flows Assets Net income Revenue Expenses Book Value of Cash Computer Straight-Line Depreciation 1.F

Answer 1

Horizontal Statements Model
Balance Sheet					Income statement
Assets			=	Stockholders' Equity	Revenue	-	Expenses	=	Net Income	Statement of Cash Flows
Cash	+	Book value of Computer		Retained Earnings
($225,000)	+	$225,000	=			-		=		IA	($225,000)
Straight-Line Depreciation:
	+	($38,000)	=			-	$38,000	=	($38,000)
Double-Declining Balance Depreciation:
	+	($76,000)	=			-	$76,000	=	($76,000)

Calculation:

Straight-line:

Depreciation expense = (Cost - Salvage value)/Estimated useful life

=($225,000-$35,000)/5 years

=$190,000/5

=$38,000

Double declining:

Depreciation expense = 2 x Straight line depreciation

= 2 x $38,000

=$76,000