/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q1E (Depreciation Computations鈥擲L,... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 11: Q1E (page 584)

(Depreciation Computations鈥擲L, SYD, DDB) Deluxe Ezra Company purchases equipment on January 1, Year 1, at a cost of \(469,000. The asset is expected to have a service life of 12 years and a salvage value of \)40,000.

Instructions

  1. Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method.
  2. Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years鈥�-digits method.
  3. Compute the amount of depreciation for each of Years 1 through 3 using the double-declining-balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.)

Short Answer

Expert verified
  1. Straight-line depreciation = $35,750
  2. Depreciation for Year 1,2 and 3 is $66,000,$60500 and $55,000

3. Depreciation for Year 1, 2 and 3 is $390,818, $65,149 and $54,289

Step by step solution

01

Meaning of Straight-Line Depreciation

Straight-line depreciation is the simplest way to assess depreciation over time.By allocating identical amounts to the asset's accounting periods over its useful life, it makes the asset's expense predictable along with smoothing net income.

02

(a) Computing the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method

Straight-line method depreciation for each of Years 1 through 3 =$35,750

Working notes:

Calculating the amount of depreciation

Straightlinedepreciation=Equipmentcost-SalvagevalueServicelife=$469,000-$40,00012=$429,00012=$35,750



03

(b) Computing the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years’-digits method

Calculating the sum of years鈥� digit

Sumofyearsdigit=Servicelife脳(Servicelife+1)2=12脳132=78

Calculating depreciation for Year 1

Depreciation=NumberofyearsSumofyears脳(Assetvalue-Salvagevalue)=1278脳($469,000-$40,000)=1278脳$429,000=$66,000

Calculating depreciation for Year 2

Depreciation=NumberofyearsSumofyears脳(Assetvalue-Salvagevalue)=1178脳($469,000-$40,000)=1178脳$429,000=$60,500

Calculating depreciation for Year 3

Depreciation=NumberofyearsSumofyears脳(Assetvalue-Salvagevalue)=1078脳($469,000-$40,000)=1078脳$429,000=$55,000



04

(c) Computing the amount of depreciation for each of Years 1 through 3 using the double-declining-balance method

Calculating double-declining-balance rate

Doubledecliningbalacemethodrate=TotalpercenatgeYears脳2=100%12脳2=16.67%

Calculating depreciation for Year 1

Depreciation=Equipmentvalue脳Doubledecliningbalancemethodrate=$469,000脳16.67%=$78,182

Calculating the book value of the asset after one year

Bookvalue=Equipmentcost-Depreciationof鈥�Year1=$469,000-$78,182=$390,818

Calculating depreciation for Year 2

Depreciation=(Equipmentcost-DepreciationofYear1)脳Doubledecliningrate=($469,000-$78,182)脳16.67%=$390,818脳16.67%=$65,149

Calculating depreciation for Year 3

Depreciation=(Equipmentcost-DepreciationofYear1-DepreciationofYear2)脳Doubledecliningrate=($469,000-$78,182-$65,149)脳16.67%=$325,65脳16.67%=$54,289

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Fernandez Corporation purchased a truck at the beginning of 2017 for \(50,000. The truck is estimated to have a salvage value of \)2,000 and a useful life of 160,000 miles. It was driven 23,000 miles in 2017 and 31,000 miles in 2018. Compute depreciation expense for 2017 and 2018.

(Error Analysis and Depreciation, SL and SYD) Mike Devereaux Company shows the following entries in its Equipment account for 2018. All amounts are based on historical cost.

Equipment
2018
2018
Jan 1Balance 134,750June 30Cost of 23,000 equipment sold (purchased prior to 2018)
Aug. 10Purchases 32,000

12Freight on Equipment purchased 700

25Installation costs 2,700

Nov. 10Repairs 500

Instructions

  1. Prepare any correcting entries necessary.
  2. Assuming that depreciation is to be charged for a full year on the ending balance in the asset account, compute the proper depreciation charge for 2018 under each of the methods listed below. Assume an estimated life of 10 years, with no salvage value. The machinery included in the January 1, 2018, balance was purchased in 2016.

    a. Straight-line
    b. Sum-of-the-years鈥�-digits.

Companies following international accounting standards can revalue fixed assets above the assets鈥� historical costs. Such revaluations are allowed under various countries鈥� standards and the standards issued by the IASB. Liberty International, a real estate company headquartered in the United Kingdom (U.K.), follows U.K. standards. In a recent year, Liberty disclosed the following information on revaluations of its tangible fixed assets. The revaluation reserve measures the amount by which tangible fixed assets are recorded above historical cost and is reported in Liberty鈥檚 stockholders鈥� equity.

Liberty International

Completed Investment Properties

Completed investment properties are professionally valued on a market value basis by external valuers at the balance sheet date. Surpluses and deficits arising during the year are reflected in the revalution reserve.

Liberty reported the following additional data. Amounts for Kimco Realty (which follows GAAP) in the same year are provided for comparison.

Liberty

(pounds sterling, in thousands)

Kimco

(dollars, in millions)

Total revenues

拢 741

$ 517

Average total assets

5,577

4,696

Net income

125

297

Instructions

  1. Compute the following ratios for Liberty and Kimco.
    1. Return on assets.
    2. Profit margin on sales.
    3. Asset turnover.

How do these companies compare on these performance measures?

  1. Liberty reports a revaluation surplus of 拢1,952. Assume that 拢1,550 of this amount arose from an increase in the net replacement value of investment properties during the year. Prepare the journal entry to record this increase.
  2. Under U.K. (and IASB) standards, are Liberty鈥檚 assets and equity overstated? If so, why? When comparing Liberty to U.S. companies, like Kimco, what adjustments would you need to make in order to have valid comparisons of ratios such as those computed in (a) above?

(Depreciation Choice鈥擡thics) Jerry Prior, Beeler Corporation鈥檚 controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff, including him.

Prior knows that depreciation is a major expense for Beeler. The company currently uses the double-declining-balance method for both financial reporting and tax purposes, and he鈥檚 thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has a carrying value of \(2,000,000 and a fair value of \)2,180,000. The gain on the sale would be reported in the income statement. He doesn鈥檛 want to highlight this method of increasing income. He thinks, 鈥淲hy don鈥檛 I increase the estimated useful lives and the salvage values? That will decrease depreciation expense and require less extensive disclosure, since the changes are accounted for prospectively. I may be able to save my job and those of my staff.鈥�

Instructions

Answer the following questions.

  1. Who are the stakeholders in this situation?
  2. What are the ethical issues involved?
  3. What should Prior do?

In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of \(8,113 million, end-of-the-year total assets of \)8,323 million, total sales of \(8,268 million, and net income of \)807 million. (a) Compute Campbell鈥檚 asset turnover. (b) Compute Campbell鈥檚 profit margin on sales. (c) Compute Campbell鈥檚 return on assets using (1) asset turnover and profit margin and (2) net income. (Round to two decimal places.)
See all solutions

Recommended explanations on Business Studies Textbooks

Strategy

Read Explanation

Sales in Business

Read Explanation

Introduction to Business

Read Explanation

Influences On Business

Read Explanation

Business Case Studies

Read Explanation

Family Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.