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Chapter 11: Q11-7E (page 586)

(Different Methods of Depreciation) Jackel Industries presents you with the following information.

Description

Date Purchased

Cost

Salvage Value

Life in years

Depreciation Method

Accumulated depreciation to 12/31/18

Depreciation for 2019

Machine A

2/12/17

\(142,500

\)16,000

10

(a)

$33,350

(b)

Machine B

8/15/16

(c)

21,000

5

SL

29,000

(d)

Machine C

7/21/15

75,400

23,500

8

DDB

(e)

(f)

Machine D

10/12/(g)

219,000

69,000

5

SYD

70,000

(h)

Instructions

Complete the table for the year ended December 31, 2019. The company depreciates all assets using the half-year convention.

Short Answer

Expert verified

Answer

Depreciation for 2019 is as follows:

  1. $19,550
  2. $11,600
  3. $4,333
  4. $35,000

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Depreciation

In financial accounting, depreciation could be a strategy for spreading out the cost of tangible resources over their functional lives. Essentially, it is the disintegration of the value of an asset, which happens over time due to continuous use and abrasion of the asset.

02

Computing the table for the year ended December 31, 2019

Description

Date Purchased

Cost

Salvage Value

Life in years

Depreciation Method

Accumulated depreciation to 12/31/18

Depreciation for 2019

Machine A

2/12/17

$142,500

$16,000

10

  1. SYD

$33,350

(b) $19,550

Machine B

8/15/16

(c)

21,000

5

SL

29,000

(d) 11,600

Machine C

7/21/15

75,400

23,500

8

DDB

(e) 47,567

(f)4,333

Machine D

10/12/17(g)

219,000

69,000

5

SYD

70,000

(h) 35,000

Working notes:

Machine A鈥擳esting the methods

Straight-Line Method for 2017

$ 6,325

Straight-Line Method for 2018

$12,650

Total Straight Line

$18,975

Depreciation=颁辞蝉迟鈥塷蹿鈥塧蝉蝉别迟鈭�厂补濒惫补驳别鈥塿补濒耻别鲍蝉别蹿耻濒鈥塴颈蹿别脳12=$142,500鈭�$16,00010脳12=$6,325

Machine A鈥擳esting the methods

Double-Declining Balance for 2017

$14,250

Double-Declining Balance for 2018

$25,650

Total Double Declining Balance

$39,900

Computing depreciation for 2017

Depreciation=Cost脳顿别肠濒颈苍颈苍驳鈥塺补迟别脳狈耻尘产别谤鈥塱苍鈥尘辞苍迟丑惭辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$142,500脳0.2脳0.5=$14,250

Calculating depreciation for 2018

Depreciation=Cost鈭�顿别辫谤别肠颈补迟辞苍鈥塷蹿鈥�2017脳顿别肠濒颈苍颈苍驳鈥塺补迟别=$142,500鈭�$14,250脳0.2=$25,650

Machine A鈥擳esting the methods

Sum-of-the-years-digits for 2017

$11,500

Sum-of-the-years-digits for 2018

$21,850

Total Sum-of-the-years-digits

$33,350

Calculating depreciation for 2017

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$142,500鈭�$16,000脳1055脳0.5=$126,500脳1055脳0.5=$11,500

Calculating depreciation for 2018 for life in 10 year

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$142,500鈭�$16,000脳1055脳12=$126,500脳1055脳12=$11,500

Calculating depreciation for 2018 for life in 9 year

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$142,500鈭�$16,000脳955脳0.5=$126,500脳955脳0.5=$10,350

So total depreciation for 2018 is $21,850 ($14,833+$21,191)

Machine A鈥擳esting the methods

The method used must be SYD

Using SYD, 2019 Depreciation is

$19,550

Calculation of depreciation for life in 9 year

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$142,500鈭�$16,000脳955脳12=$126,500脳955脳12=$10,350

Calculation of depreciation for life in 8 year

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$142,500鈭�$16,000脳855脳0.5=$126,500脳855脳0.5=$9,200

So total depreciation is $19,500 ($10,350+$9,200)

Machine B-Computation of the cost

The asset has been depreciated for 21/2years using the straight-line method.

Annual depreciation is then equal to $29,000 divided by 2.5 or $11,600. 11,600 times 5 plus the salvage value is equal to the cost. Cost is $79,000

Cost=础苍苍耻补濒鈥塪别辫谤别肠颈补迟颈辞苍脳尝颈蹿别鈥塱苍鈥墆别补谤蝉+厂补濒惫补驳别鈥塿补濒耻别=$11,600脳5+$21,000=$79,000

Using SL, 2017 Depreciation is $11,600

Machine C鈥攗sing the double-declining balance method of depreciation

Year

Depreciation expense

Calculation

2015鈥檚 depreciation is

$ 9,425

($75400 x .25 x 5)

2016鈥檚 depreciation is

$16,494

($75400 - $9,425) x .25

2017鈥檚 depreciation is

$12,370

($75400 - $25,919) x .25

2018鈥檚 depreciation is

$ 9,278

($75400 - $38,289) x .25

$47,567

So,Using DDB, 2019 Depreciation is $4,333 ($75,400 鈥� $47,567 鈥� $23,500)

Machine D鈥擟omputation of Year Purchased

First Half Year using SYD

$25,000

Second Year using SYD

$45,000

$70,000

Calculating depreciation for the first half-year using SYD

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$219,000鈭�$69,000脳515脳.5=$150,000脳515脳.5=$25,000

Calculating depreciation for Second Year using SYD for 5 years in life

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$219,000鈭�$69,000脳515脳.5=$150,000脳515脳.5=$25,000

Calculating depreciation for Second Year using SYD for 4 years in life

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$219,000鈭�$69,000脳415脳.5=$150,000脳415脳.5=$20,000

So, the total depreciation expense is $70,000

Thus the asset must have been purchased on October 12, 2017

Using SYD, 2019 Depreciation is $35,000

Calculating depreciation for 4 years in the life

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$219,000鈭�$69,000脳415脳.5=$150,000脳415脳.5=$20,000

Calculating depreciation for 3 years in the life

Depreciation=颁辞蝉迟鈥�鈭�厂补濒惫补驳别鈥塿补濒耻别脳狈耻尘产别谤鈥塷蹿鈥墆别补谤厂耻尘鈥塷蹿鈥墆别补谤蝉鈥塪颈驳颈迟脳狈耻尘产别谤鈥塷蹿鈥媘辞苍迟丑狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$219,000鈭�$69,000脳315脳.5=$150,000脳315脳.5=$15,000

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Most popular questions from this chapter

(Depreciation for Partial Period鈥擲L, SYD, and DDB) Alladin Company purchased Machine #201 on May 1, 2017. The following information relating to Machine #201 was gathered at the end of May.

Price

\(85,000

Credit terms

2/10, n/30

Freight-in

\) 800

Preparation and installation costs

\( 3,800

Labor costs during regular production operations

\)10,500

It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Alladin intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,500. The invoice for Machine #201 was paid May 5, 2017. Alladin uses the calendar year as the basis for the preparation of financial statements.

Instructions

  1. Compute the depreciation expense for the years indicated using the following methods. (Round to the nearest dollar.)
    1. Straight-line method for 2017.
    2. Sum-of-the-years鈥�-digits method for 2018.
    3. Double-declining-balance method for 2017.
  2. Suppose Kate Crow, the president of Alladin, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company鈥檚 depreciation expense to the early years and more to later years of the assets鈥� lives. What method would you recommend?

A building that was purchased on December 31, 2003, for $2,500,000 was originally estimated to have a life of 50 years with no salvage value at the end of that time. Depreciation has been recorded through 2017. During 2018, an examination of the building by an engineering firm discloses that its estimated useful life is 15 years after 2017. What should be the amount of depreciation for 2018?

(Comprehensive Fixed-Asset Problem) Darby Sporting Goods Inc. has been experiencing growth in the demand for its products over the last several years. The last two Olympic Games greatly increased the popularity of basketball around the world. As a result, a European sports retailing consortium entered into an agreement with Darby鈥檚 Roundball Division to purchase basketballs and other accessories on an increasing basis over the next 5 years.

To be able to meet the quantity commitments of this agreement, Darby had to obtain additional manufacturing capacity. A real estate firm located an available factory in close proximity to Darby鈥檚 Roundball manufacturing facility, and Darby agreed to purchase the factory and used machinery from Encino Athletic Equipment Company on October 1, 2016. Renovations were necessary to convert the factory for Darby鈥檚 manufacturing use.

The terms of the agreement required Darby to pay Encino \(50,000 when renovations started on January 1, 2017, with the balance to be paid as renovations were completed. The overall purchase price for the factory and machinery was \)400,000. The building renovations were contracted to Malone Construction at \(100,000. The payments made, as renovations progressed during 2017, are shown below. The factory was placed in service on January 1, 2018.

1/1

4/1

10/1

12/31

Encino

\)50,000

\(90,000

\)110,000

\(150,000

Malone

30,000

30,000

40,000

On January 1, 2017, Darby secured a \)500,000 line-of-credit with a 12% interest rate to finance the purchase cost of the factory and machinery, and the renovation costs. Darby drew down on the line-of-credit to meet the payment schedule shown above; this was Darby鈥檚 only outstanding loan during 2017.

Bob Sprague, Darby鈥檚 controller, will capitalize the maximum allowable interest costs for this project. Darby鈥檚 policy regarding purchases of this nature is to use the appraisal value of the land for book purposes and prorate the balance of the purchase price over the remaining items. The building had originally cost Encino \(300,000 and had a net book value of \)50,000, while the machinery originally cost \(125,000 and had a net book value of \)40,000 on the date of sale. The land was recorded on Encino鈥檚 books at \(40,000. An appraisal, conducted by independent appraisers at the time of acquisition, valued the land at \)290,000, the building at \(105,000, and the machinery at \)45,000.

Angie Justice, chief engineer, estimated that the renovated plant would be used for 15 years, with an estimated salvage value of \(30,000. Justice estimated that the productive machinery would have a remaining useful life of 5 years and a salvage value of \)3,000. Darby鈥檚 depreciation policy specifies the 200% declining-balance method for machinery and the 150% decliningbalance method for the

plant. One-half year鈥檚 depreciation is taken in the year the plant is placed in service, and one-half year is allowed when the property is disposed of or retired. Darby uses a 360-day year for calculating interest costs.

Instructions

  1. Determine the amounts to be recorded on the books of Darby Sporting Goods Inc. as of December 31, 2017, for each of the following properties acquired from Encino Athletic Equipment Company.
    1. Land.
    2. Buildings.
    3. Machinery.
  2. Calculate Darby Sporting Goods Inc.鈥檚 2018 depreciation expense, for book purposes, for each of the properties acquired from Encino Athletic Equipment Company.
  3. Discuss the arguments for and against the capitalization of interest costs.

Describe cost depletion and percentage depletion. Why is the percentage depletion method permitted?

(Depreciation Computation鈥擜ddition, Change in Estimate) In 1990, Herman Moore Company completed the construction of a building at a cost of \(2,000,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of \)60,000 at the end of that time.

Early in 2001, an addition to the building was constructed at a cost of \(500,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years and that the addition would have a life of 30 years and a salvage value of \)20,000.

In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.

Instructions

  1. Using the straight-line method, compute the annual depreciation that would have been charged from 1991 through 2000.
  2. Compute the annual depreciation that would have been charged from 2001 through 2018.
  3. Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2019.
  4. Compute the annual depreciation to be charged, beginning with 2019.
See all solutions

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