Question

Preparing Depreciation Schedules Using Various Depreciation Methods Frito Inc. acquired equipment on January 1, 2020, at a cost of $12,000 that is estimated to have a useful life of five years and a residual value of $3,000 Required Prepare a depreciation schedule showing annual depreciation expense and year-end accumulated depreciation and book value over the life of the asset using the following methods. a. Straight-line method. b. Sum-of-the-years'-digits method. c. Double-declining-balance method. Straight-line Sum-of-the-years'-digits Double-declining balance b. Sum-of-the-Years'-Digits Depreciation Method End of Period For the Period Depreciation Accumulated Depreciation Вook Reporting Period Value Expense $ Jan. 1, 2020 Dec. 31, 2020 $ $ Dec. 31, 2021 Dec. 31, 2022 Dec. 31, 2023 Dec. 31, 2024

Answer 1

Using Straight Line method

Amount of depreciation to be deducted = (Cost of asset- Residual value)/ Number of years of useful life

= (12000-3000)/5 = $1800 per year

	Depreciation expense	Accumulated depreciation	Book value (Cost of asset- Accumulated depreciation)
Dec 31, 2020	1800	1800	10200
Dec 31, 2021	1800	3600	8400
Dec 31, 2022	1800	5400	6600
Dec 31, 2023	1800	7200	4800
Dec 31, 2024	1800	9000	3000

Using sum of the years digit method

Cost of the asset on which depreciation would be calculated= Cost of asset- residual value of asset = 12000- 3000 =$9000

Depreciation expense= (Cost of asset on which depreciation would be calculated* remaining value of asset)/ Sum of years digits

Depreciation expense at the end of first year= 9000*(5/15)= 3000

Depreciation expense at the end of second year= 9000*(4/15)= 3000

Depreciation expense at the end of third year= 9000*(3/15)= 1800

Depreciation expense at the end of fourth year= 9000*(2/15)= 1200

Depreciation expense at the end of fifth year= 9000*(1/15)=600

	Depreciation expense	Accumulated depreciation	Book value (Cost of asset- Accumulated depreciation)
Dec 31, 2020	3000	3000	9000
Dec 31, 2021	2400	5400	6600
Dec 31, 2022	1800	7200	4800
Dec 31, 2023	1200	8400	3600
Dec 31, 2024	600	9000	3000

Double declining balance:

Depreciation = 2* Straight line method depreciation rate* Book value

Straight line method depreciation rate = 100%/5 = 20%

Depreciation for the first year = 2*20%*12000 = 4800

Depreciation for the first year = 2*20%*7200 = 2880

Similarly, this depreciation can be calculated for rest number of years

	Depreciation expense	Accumulated depreciation	Book value (Cost of asset- Accumulated depreciation)
Dec 31, 2020	4800	4800	7200
Dec 31, 2021	2880	7680	4320
Dec 31, 2022	1728	9408	2592
Dec 31, 2023	1037	10445	1555
Dec 31, 2024	622	11067	933