Depreciation

On July 1, 2006, N Company purchased for $1,300,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $60,000. Depreciation is taken for the portion of the year the asset is used.

Instructions

(a) Complete the form below by determining the depreciation expense and year-end book values for 2006 and 2007 using the

1. sum-of-the-years'-digits method.

2. double-declining-balance method.

Sum-of-the-Years'-Digits Method 2006 2007

Equipment $1,300,000 $1,300,000

Less: Accumulated Depreciation

Year-End Book Value

Depreciation Expense for the Year

Double-Declining-Balance Method 2006 2007

Equipment $1,300,000 $1,300,000

Less: Accumulated Depreciation

Year-End Book Value

Depreciation Expense for the Year

(b) Assume the company had used straight-line depreciation during 2006 and 2007. During 2008, the company determined that the equipment would be useful to the company for only one more year beyond 2008. The salvage value, which was originally $60,000, has changed to $80,000 for 2008. Compute the depreciation expense for 2008.

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...Less: Accumulated Depreciation $ 206,666.67 $ 578,666.67

Year-End Book Value $1,093,333.33 $ 721,333.33

Depreciation Expense for the Year $ 206,666.67 $ 372,000.00

sum of years digits

1 + 2 + 3 + 4 + 5 = 15

Year Ending balance of Accumulated depreciation
1 5/15 x ($1,300,000 - $60,000) = 413,333.33 206,666.67
2 4/15 x ($1,300,000 - $60,000) = 330,666.67 165,333.33
3 3/15 x ($1,300,000 - $60,000) = 248,000.00
4 2/15 x ($1,300,000 - $60,000) = 165,333.33
5 1/15 x ($1,300,000 - $60,000) = 82,666.67

Double-Declining-Balance Method 2006 ...