Depreciation methods. On July 1, 2020, Sport Company purchased for $3,600,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $150,000. 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 2020 and 2021 using the sum-of-the-years'-digits method. double-declining balance method. Sum-of-the-Years'-Digits Method 2020 2021 Equipment $3,600,000 $3,600,000 Less: Accumulated Depreciation _______ _______ Year-End Book Value _______ _______ Depreciation Expense for the Year _______ _______ Double-Declining Balance Method Equipment $3,600,000 $3,600,000 Less: Accumulated Depreciation _______ _______ Year-End Book Value _______ _______ Depreciation Expense for the Year _______ _______ (b) Assume the company had used straight-line depreciation during 2020 and 2021. During 2022, the company determined that the equipment would be useful to the company for only one more year beyond 2022. Salvage value is estimated at $200,000. (1) Compute the amount of depreciation expense for the 2022 income statement. (2) What is the depreciation base of this asset?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On July 1, 2020, Sport Company purchased for $3,600,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $150,000. 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 2020 and 2021 using the
- sum-of-the-years'-digits method.
- double-declining balance method.
Sum-of-the-Years'-Digits Method 2020 2021
Equipment $3,600,000 $3,600,000
Less:
Year-End Book Value _______ _______
Depreciation Expense for the Year _______ _______
Double-Declining Balance Method
Equipment $3,600,000 $3,600,000
Less: Accumulated Depreciation _______ _______
Year-End Book Value _______ _______
Depreciation Expense for the Year _______ _______
(b) Assume the company had used straight-line depreciation during 2020 and 2021. During 2022, the company determined that the equipment would be useful to the company for only one more year beyond 2022. Salvage value is estimated at $200,000.
(1) Compute the amount of depreciation expense for the 2022 income statement.
(2) What is the depreciation base of this asset?
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