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Chapter 11: Q15E (page 587)

Andrea Torbert purchased a computer for \(8,000 on July 1, 2017. She intends to depreciate it over 4 years using the double-declining-balance method. Salvage value is \)1,000. Compute depreciation for 2018.

Short Answer

Expert verified

Depreciation for 2018 = $3,000

Step by step solution

01

Meaning of Double declining depreciation

In double declining balance depreciation, the existing depreciation approach is doubled. Deferring income taxes to later years permits the company to devalue settled resources more intensely during its early years.

02

Computing depreciation for 2018 

Double-declining rate

25% straight-line rate X 2 = 50%

Depreciation for the first full year.

$4,000

Depreciation for half a year (first year), 2017

$2,000

Depreciation for 2018.

$3,000

Working notes:

Calculating the amount of depreciation for the first full years

Depreciationforfirstfullyears=Costofcomputer脳Doubledecliningrate=$8,000脳50%=$4,000


Calculating the amount of depreciation for half a year

Depreciation鈥�forhalfayear=Depreciationforfirstfullyears脳Totalmonth=$4,000脳612=$2,000

Calculating the amount of depreciation for 2018

Depreciationfor2018=(Costofcomputer-Depreciationforhalfyear)脳Doubledecliningrate=($8,000-$2,000)脳50%=$6,000脳50%=$3,000

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Most popular questions from this chapter

Silverman Company purchased machinery for \(162,000 on January 1, 2017. It is estimated that the machinery will have a useful life of 20 years, salvage value of \)15,000, production of 84,000 units, and working hours of 42,000. During 2017, the company uses the machinery for 14,300 hours, and the machinery produces 20,000 units. Compute depreciation under the straight-line, units-of-output, working hours, sum-of-the-years鈥�-digits, and double-declining-balance methods.

(Depreciation Computations鈥擣our Methods) Robert Parish Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was \(117,900. The company estimated that the machine would have a salvage value of \)12,900 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 21,000 hours. Year-end is December 31.

Instructions

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated.

  1. Straight-line depreciation for 2017.
  2. Activity method for 2017, assuming that machine usage was 800 hours.
  3. Sum-of-the-years鈥�-digits for 2018.
  4. Double-declining balance for 2018.

Presented below is information related to equipment owned by Pujols Company at December 31, 2017.

Cost (residual value \(0)

\)9,000,000

Accumulated depreciation to date

1,000,000

Value-in-use

5,500,000

Fair value less cost of disposal

4,400,000

Assume that Pujols will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 8 years. Pujols uses straight-line depreciation.

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.
  2. Prepare the journal entry to record depreciation expense for 2018.
  3. The recoverable amount of the equipment at December 31, 2018, is $6,050,000. Prepare the journal entry (if any) necessary to record this increase.


(Impairment) Assume the same information as E11-16, except that Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be \(20,000.

Cost

\)9,000,000

Accumulated depreciation to date

1,000,000

Expected future net cash flows

7,000,000

Fair value

4,800,000

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.
  2. Prepare the journal entry (if any) to record depreciation expense for 2018.
  3. The asset was not sold by December 31, 2018. The fair value of the equipment on that date is \(5,300,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still \)20,000.

Distinguish among depreciation, depletion, and amortization.
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