Concept explainers
1. (a)
Methods of
The three methods of depreciation are:
- Straight-line method: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.
- Units-of-activity method: In this method of depreciation, the amount of depreciation is charged based on the unit of production each year.
- Double-declining balance method (Accelerated method): In this method of depreciation, the diminishing value of the asset is taken into consideration for determining the depreciation for the succeeding years.
the amount of depreciation for four years ending December 31 by straight-line method.
1. (a)
Explanation of Solution
Determine the amount of depreciation for four years ending December 31 by straight-line method.
Year | Depreciation Expense (1) |
2015 | $71,250 |
2016 | $71,250 |
2017 | $71,250 |
2018 | $71,250 |
Total | $285,000 |
Table (1)
Working note:
Compute depreciable expense under
Cost of the equipment= $320,000
Residual value of the equipment = $35,000.
Estimated Useful life of the equipment = 4 years
Therefore, the amount of depreciation for four years ending December 31 by straight-line method is $71,250.
(b)
the amount of depreciation for four years ending December 31 by units-of-activity method.
(b)
Explanation of Solution
Determine the amount of depreciation for four years ending December 31 by units-of-activity method.
Year | Number of Hours (A) | Depreciable Rate (B) (2) | Depreciation Expense (A×B) |
2015 | 7,200 | $14.25 | $102,600 |
2016 | 6,400 | $14.25 | $91,200 |
2017 | 4,400 | $14.25 | $62,700 |
2018 | 2,000 | $14.25 | $28,500 |
Total | $285,000 |
Table (2)
Working notes:
Determine the depreciable rate of the equipment.
Cost of the equipment= $320,000
Residual value of the equipment = $35,000.
Estimated Useful life of the equipment = 20,000 operating hours.
Therefore, the amount of depreciation for four years ending December 31 by units-of-activity method are 2015: $102,600, 2016: $91,200, 2017: $62,700, and 2018: $28,500.
(c)
the amount of depreciation for four year years ending December 31 by double-declining-balance method.
(c)
Explanation of Solution
Determine the amount of depreciation for four years ending December 31 by double-declining-balance method.
Year | Depreciable Expense |
2015 | $160,000 (3) |
2016 | $80,000 (4) |
2017 | $40,000 (5) |
2018 | $5,000 (6) |
Total | $285,000 |
Table (3)
Working notes:
Compute depreciable expense for 2015.
Compute depreciable expense for 2016.
Compute depreciable expense for 2017.
Compute depreciable expense for 2018.
Note (6):
Since the depreciation expense should not exceed the residual value of $35,000. Thus, it should be adjusted to make the book value of the equipment (cost less accumulated depreciation) equal to its residual value. Thus, the depreciation expense for 2018 would be
Therefore, the amount of depreciation for four years ending December 31 by double-declining-balance method are 2015: $160,000, 2016: $80,000, 2017: $40,000, and 2018: $5,000.
2.
the method that yields the highest depreciation expense for 2015.
2.
Explanation of Solution
The method that yields the highest depreciation expense for 2015 is double-declining-balance method that is, $160,000.
3.
the method that yields the most depreciation over the four-year life of the equipment.
3.
Explanation of Solution
As calculated above, the total depreciation expense under three method for the four-year life of the equipment is same, that is, $285,000. Thus, it cannot be determined.
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