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Chapter 11: Q4BE (page 584)

Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the double-declining-balance method. (b) Compute 2017 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2017.

Short Answer

Expert verified
  1. Depreciation expense = $20,000
  2. Depreciation expense = $5,000

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of the Depreciation

Depreciation expense is an expense that is incurred on a tangible asset due to obsolescence or the passage of time on that asset. A company has a different option for determining depreciation but straight-line depreciation is the simplest one.

02

(a) Computing depreciation using the double-declining balance method.

Calculating double-declining rate

顿辞耻产濒别鈥塪别肠濒颈苍颈苍驳鈥塺补迟别=1鲍蝉别蹿耻濒鈥塴颈蹿别脳2=18脳2=25%


Calculating depreciation expense

顿别辫谤别肠颈补迟颈辞苍鈥塭虫辫别苍蝉别=颁辞蝉迟鈥塷蹿鈥塧蝉蝉别迟脳顿辞耻产濒别鈥塪别肠濒颈苍颈苍驳鈥塺补迟别=$80,000脳25%=$20,000


03

(b) Computing depreciation using the double-declining balance method.

Calculating depreciation expense

顿别辫谤别肠颈补迟颈辞苍鈥塭虫辫别苍蝉别=颁辞蝉迟鈥塷蹿鈥塧蝉蝉别迟脳顿辞耻产濒别鈥塪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=$80,000脳25%脳312=$5,000

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Most popular questions from this chapter

Lockard Company purchased machinery on January 1, 2017, for \(80,000. The machinery is estimated to have a salvage value of \)8,000 after a useful life of 8 years. (a) Compute 2017 depreciation expense using the straight-line method. (b) Compute 2017 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2017.

McDonald鈥檚 Corporation

McDonald鈥檚 is the largest and best-known global food-service retailer, with more than 32,000 restaurants in 118 countries. On any day, McDonald鈥檚 serves approximately 1 percent of the world鈥檚 population. The following is information related to McDonald鈥檚 property and equipment.

McDonald鈥檚 Corporation

Summary of Significant Accounting Policies Section

Property and Equipment. Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over the following estimated useful lives: buildings鈥攗p to 40years; leasehold improvements鈥攖he lesser of useful lives of assets or lease terms, which generally include option periods; and equipment鈥攖hree to 12 years.

[In the notes to the financial statements:]

Property and Equipment

Net property and equipment consisted of:

December 31

(In millions) 2014 2013

Land \( 5,788.4 \)5,849.3

Buildings and improvements on owned land 14,322.4 14,715.6

Buildings and improvements on leased land 13,284.0 13,825.2

Equipment, signs and seating 5,113.8 5,376.8

Other 617.5 588.7

39,126.1 40,355.6

Accumulated depreciation and amortization (14,568.6) (14,608.3)

Net property and equipment \(24,557.5 \)25,747.3

Depreciation and amortization expense for property and equipment was

(in millions): 2014鈥擻(1,539.3; 2013鈥擻)1,498.8; 2012鈥擻(1,402.2.

[In its 6-year summary, McDonald鈥檚 provides the following information.]

(in millions) 2014 2012 2013

Cash provided by operations \)6,370 \(7,121 \)6,966

Capital expenditures 2,583 2,825 3,049

Instructions

  1. What method of depreciation does McDonald鈥檚 use?
  2. Does depreciation and amortization expense cause cash flow from operations to increase? Explain.
  3. What does the schedule of cash flow measures indicate?

(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.

(Depreciation for Fractional Periods) On March 10, 2019, Lost World Company sells equipment that it purchased for \(192,000 on August 20, 2012. It was originally estimated that the equipment would have a life of 12 years and a salvage value of \)16,800 at the end of that time, and depreciation has been computed on that basis. The company uses the straight line method of depreciation.

Instructions

  1. (a) Compute the depreciation charge on this equipment for 2012, for 2019, and the total charge for the period from 2013 to 2018, inclusive, under each of the six following assumptions with respect to partial periods.
    1. Depreciation is computed for the exact period of time during which the asset is owned. (Use 365 days for base and record depreciation through March 9, 2019.)
    2. Depreciation is computed for the full year on the January 1 balance in the asset account.
    3. Depreciation is computed for the full year on the December 31 balance in the asset account.
    4. Depreciation for one-half year is charged on plant assets acquired or disposed of during the year.
    5. Depreciation is computed on additions from the beginning of the month following acquisition and on disposals to the beginning of the month following disposal.
    6. Depreciation is computed for a full period on all assets in use for over one-half year, and no depreciation is charged on assets in use for less than one-half year. (Use 365 days for base.)
  2. (b) Briefly evaluate the methods above, considering them from the point of view of basic accounting theory as well as simplicity of application.

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.
See all solutions

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