Question

bought equipment on January 1, 2020, for $45,000. The expected life is 10 years. y Veto Company Exercise 12-49 sying Depreciation value is $5,000. Based on three acceptable depreciation methods, the annual depreciation expense a end of 2020 and 2021 are shown below. and the residual accumulated depreciation at the n expense and balance of Sched Lo Case A Case B Case C Annual Accumulated Annual Accumulated Annual Am Year Expense Amount 2020... $9,000 2021.7,200 Expense Amount Amount $ 7,273 13,818 Expense $ 9,000 16,200 $4,000 $4,000 8,000 4,000 $7,273 6,545 Required Identify the depreciation method used in each case A, B, and C. b. Based on the answer to part a, prepare a depreciation schedule that shows annual depreciation expense, cumulated depreciation, and book value over the life of the asset for each case A, B, and C. Which method results in the highest net income in year 1? Which method results in the highest net income in year 10? C. d.

Answer 1

Answer

Straight line Method-Case B Cost Salvage Value Depreciable Amount Life Annual Depreciation 45000 5000 10 years 4000 Accumulated Year Depreciation Depreciation Book Value 4,000 8,000 12,000 16,000 20,000 24,000 28,000 32,000 36,000 40,000 4000 41,000 37,000 33,000 29,000 25,000 21,000 17,000 13,000 9,000 4 4000 4000 4000 10 4000 Double-declining bala Straight-line depreciation rate (1 divided by 10 years) Double the straight-line rate is 20% (10% X 2) This rate is applied to the book value of the asset at the beginning of each year. (Book value is cost minus accumulated depreciation.) nce - Case A 10% 20% Cost 45,000 5,000 Salvage Value S Depreciable Amount 40,000 Depreciation @20% Accumulated Depreciation Book Value Year At inception 45,000 Salvage value is ignored 9,000 $ 7,200 5,760 $ 4,608 $ 3,686 2,949 2,359 $ 1,887 $ 1,510 $ 1,040 9,000 $ 16,200 21,960 26,568 30,254 33,204 35,563$ 37,450 $ 38,960 40,000S 36,000 28,800 23,040 18,432 14,746 11,796 9,437 7,550 6,040 5,000 10 40,000

Sum of vears' digits method - Case C Cost Of Machine Salvage Value 45,000 5,000 40,000 Depreciation Remaining life of Depreciation Depreciation Base Year the asset fraction Expense Book Value 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 37,727 31,182 25,364 20,273 15,909 12,273 9,364 7,182 5,727 5,000 10 0.182 0.164 0.145 0.127 0.109 0.091 0.073 0.055 0.036 0.018 7,273 6,545 5,818 5,091 4,364 3,636 2,909 2,182 1,455 727 4 6 6 4 9 10 Answer a Case A Case B Case C Double-declining balance Case A Straight line Method -Case EB Sum of years' digits method Case C Answer b Refer above Depreciation expense Year 1 Answer c Case A Case B Case C 9,000 4000 7,273 The depreciation expense is lowest in Case B (Straight line method), hence Net income will be highest in Case B in year 1 Depreciation expense Year 10 Answer D Case A Case B Case C 1,040 4,000 727 The depreciation expense is lowest in Case C (sum of years digits method) , hence Net income will be highest in Case C in year 10