Find solutions for your homework Search home / study / business / accounting / accounting questions and answers / wildhorse company acquired a plant asset at the beginning of year 1. the asset has an estimated ... Your question has been answered Let us know if you got a helpful answer. Rate this answer Question: Wildhorse Company acquired a plant asset at the beginning of Year 1. The asset has an... Wildhorse Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method. Year Straight-Line Sum-of-the- Years'-Digits Double-Declining- Balance 1 $12,240 $20,400 $27,200 2 12,240 16,320 16,320 3 12,240 12,240 9,792 4 12,240 8,160 5,875 5 12,240 4,080 2,013 Total $61,200 $61,200 $61,200 a) What is the cost of the asset being depreciated? $ (b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset? $ (c) Which method will produce the highest charge to income in Year 1? Double-declining balance methodSum-of-the-years'-digits methodStraight-line method (d) Which method will produce the highest charge to income in Year 4? Straight-line methodSum-of-the-years'-digits methodDouble-declining balance method (e) Which method will produce the highest book value for the asset at the end of Year 3? Sum-of-the-years'-digits methodStraight-line methodDouble-declining balance method (f) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset? Double-declining balance methodStraight-line methodSum-of-the-years'-digits method
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.
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Question: Wildhorse Company acquired a plant asset at the beginning of Year 1. The asset has an...
Wildhorse Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.
|
Year |
Straight-Line |
Sum-of-the- |
Double-Declining- |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | $12,240 | $20,400 | $27,200 | |||||||||
| 2 | 12,240 | 16,320 | 16,320 | |||||||||
| 3 | 12,240 | 12,240 | 9,792 | |||||||||
| 4 | 12,240 | 8,160 | 5,875 | |||||||||
| 5 | 12,240 | 4,080 | 2,013 | |||||||||
| Total | $61,200 | $61,200 | $61,200 |
a) What is the cost of the asset being depreciated?
$
(b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
$
(c) Which method will produce the highest charge to income in Year 1?
Double-declining balance methodSum-of-the-years'-digits methodStraight-line method
(d) Which method will produce the highest charge to income in Year 4?
Straight-line methodSum-of-the-years'-digits methodDouble-declining balance method
(e) Which method will produce the highest book value for the asset at the end of Year 3?
Sum-of-the-years'-digits methodStraight-line methodDouble-declining balance method
(f) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?
Double-declining balance methodStraight-line methodSum-of-the-years'-digits method
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