Question

determine which depreciation method is shown in each schedule on the pattern planning Corp panel then match each schedule to the asset descro

Cengage w ine thing and Chapter mastery set Calculator Mastery Problem Long-Term Assetsed and intangible Patterson Planning Corp You have been hired by Patterson Planning Corp. an event planning company that recently had a fire in which some of the accounting records were damaged One of the assets has a depreciation rate 4.10 per hout In reviewing the ed asset records, you find three depreciation schedules that are not beed. They wested in the following Year Schedule A Schedule B Schedulec 1 $12,000 $10,125 $9,890 7,200 13,500 4,320 13,500 7,310 13,500 6.450 888 3,375 4,100 6.680 2,592 $54,000 $46,010 Total $27,000 the Depreciation description that best characters the type of 1. Determine which depreciation method is shown in each schedule on the Patterson Planning Corp. panel. Then match each schedule to the depreciated using that method. Asset Description Depreciation Schedule Used Asset producing steady revenues

Answer 1

1	Schedule A:
	Depreciation more for the first years.
	Then it is reducing.
	Hence,Diminishing balance method is used.
	Depreciation rate=(Depreciation in year 1-Depreciation in year 2)/Depreciation in year 1=(12000-7200)/12000=4800/12000=40%
	More depreciation means more usage
	More usage means more revenues
	Hence,it is an asset generating greater revenues in the early years
	Schedule B:
	Depreciation is constant for 2 to 4 years
	Depreciation for year 1 and 5 is different may be due to time factor
	Hence,this is straight-line method of depreciation
	Depreciation is constant.
	Hence,it is an asset producing steady revenues
	Schedule C:
	Depreciation is variable over the years
	This may be units of production method
	Hence,it is an asset with variable in-service time
	Asset description					Depreciation schedule used
	Asset producing steady revenues					B
	Asset with variable in-service time					C
	Asset generating greater revenues in the early years					A
2	Schedule A:
	Cost=Depreciation for the first year/Depreciation rate=12000/40%=$ 30000
	Residual value=Can not be determined
	Schedule B:
	Depreciation=(Cost-Residual value)/Useful life
	13500=(Cost-0)/5
	Cost=13500*5=$ 67500
	Schedule C:
	Useful life=7 years		(Depreciation schedule for 7 years)
	Cost-Residual value=Total depreciation charged over 7 years
	Cost-0=46010
	Cost=$ 46010
	Total operating hours=Total depreciation/Depreciation rate=46010/4.30=10700 hours
				A	B	C
	Useful life			5	4	7
	Residual value			Can't tell	0	0
	Asset cost			30000	67500	46010
	Total operating hours			0	0	10700
1	Total depreciation will be decreased by increased residual value
	Total depreciation=54000-2000=$ 52000
	Depreciation for year 3:
	Book value at the beginning of year 3=Cost-(Depreciation for first 2 years)=67500-(10125+13500)=67500-23625=$ 43875
	Remaining life=5 years
	Depreciable value from year 3=Book value at the beginning of year 3-Increased residual value=43875-2000=$ 41875
	Depreciation for year 3=Depreciable value from year 3/Remaining life=41875/5=$ 8375
	The total depreciation for this asset now will be $ 52000. The depreciation amount for year 3 will be $ 8375.