Financial & Managerial Accounting
Financial & Managerial Accounting
18th Edition
ISBN: 9781260006520
Author: williams
Publisher: MCG
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Chapter 9, Problem 2BP

a)

To determine

Prepare a complete depreciation schedule, beginning with the current year, under

  1. 1) Straight line
  2. 2) 200 percent declining balance
  3. 3) 150 percent declining balance, (not switching to straight line)

a)

Expert Solution
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Explanation of Solution

1. Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:

Depreciation cost = (Cost of the assetResidual value)Estimated useful life of the asset

Prepare a complete depreciation table under Straight line:

Year

Computation

Depreciation ExpenseAccumulated Depreciation

Book

Value

1$170,000×(1÷5year)×12$17,000$17,000$163,000
2$170,000×(1÷5year)34,00051,000129,000
3$170,000×(1÷5year)34,00085,00095,000
4$170,000×(1÷5year)34,000119,00061,000
5$170,000×(1÷5year)34,000153,00027,000
6$170,000×(1÷5year)×1217,000170,00010,000

Table (1)

Calculate the depreciable cost of the equipment:

Cost of the equipment is $180,000 and the residual value of the equipment is $10,000.

Therefore, the depreciable cost of the equipment is $170,000($180,000$10,000).

(1)

2. 200 percent 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.

200 percent declining-balance = (Cost of the asset) ×200%Useful Life

Depreciation rate for 200 percent declining balance method:

Depreciation rate for 200 percent declining-balance = 200%Useful Life=200%5years=40%

Prepare a complete depreciation table under 200 percent declining balance method:

YearComputationDepreciation Expense

Accumulated

Depreciation

Book

Value

1$180,000 × 40% ×12$36,000$36,000$144,000
2144,000 ×40%57,60093,60086,400
386,400 ×40%34,560128,16051,840
451,840 ×40%20,736148,89631,104
531,104 ×40%12,442161,33818,662
618,662 – 10,0008,662170,00010,000

Table (2)

3. 150 percent 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.

150% declining-balance = (Cost Accumulated Depreciation) ×150%Useful Life

Depreciation rate for 150 percent declining balance method:

Depreciation rate for 150 percent declining-balance = 150%Useful Life=150%5years=30%

Prepare a complete depreciation table under 150 percent declining balance method:

Year

Computation

Depreciation Expense

Accumulated

Depreciation

Book

Value

1$180,000 ×30% ×12$27,000$27,000$153,000
2153,000 ×30%45,90072,900107,100
3107,100 ×30%32,130105,03074,970
474,970 ×30%22,491127,52152,479
552,479× 30%15,744143,26536,735
636,735 – 10,00026,735170,00010,000

Table (3)

b)

To determine

Identify the depreciation method that is most common for financial reporting purposes and explain.

b)

Expert Solution
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Explanation of Solution

Straight line depreciation method is the most common depreciation method for financial reporting. The main reason for that is, under the straight line method the amount of depreciation expense reported is very less in the initial years as compared to other depreciation methods.

c)

To determine

Compute the resulting gain or loss from the sale of machine under each of the depreciation methods used in requirement (a). Explain that the gain or loss reported in the company’s income statement have any direct cash effect.

c)

Expert Solution
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Explanation of Solution

Disposal of Assets: Disposal is an activity of selling the worn-out assets that is no longer in need for the business, in return of some consideration.

Under the straight line method:

Cash proceeds$58,000
Book value at the end of the fourth year(61,000)
Loss on disposal$(3,000)

Table (4)

Under the 200 percent declining balance method:

Cash proceeds $58,000
Book value at the end of the fourth year(31,104)
Gain on disposal $26,896

Table (5)

Under the 150 percent declining balance method:

Cash proceeds $58,000
Book value at the end of the fourth year(52,479)
Loss on disposal$(5,521)

Table (6)

In the income statement, there is no direct cash effect due to the gain or loss of sale of the machine. But, the sale proceed of the machine ($58,000) is having direct cash effect on the income statement.

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Chapter 9 Solutions

Financial & Managerial Accounting

Ch. 9 - Prob. 5DQCh. 9 - Prob. 6DQCh. 9 - 7. Should depreciation continue to be recorded on...Ch. 9 - 8. Explain what is meant by an accelerated...Ch. 9 - Prob. 9DQCh. 9 - 10. Evaluate the following quotation: “We shall...Ch. 9 - 11. Explain two approaches to computing...Ch. 9 - Prob. 12DQCh. 9 - Prob. 13DQCh. 9 - 14. Explain the meaning of an impairment of an...Ch. 9 - 15. Several years ago Bennet Security purchased a...Ch. 9 - BRIEF EXERCISE 9.1 Amigos, Inc., purchased a used...Ch. 9 - BRIEF EXERCISE 9.2 Straight-Line...Ch. 9 - BRIEF EXERCISE 9.3 Straight-Line and...Ch. 9 - BRIEF EXERCISE 9.4 Declining-Balance...Ch. 9 - BRIEF EXERCISE 9.5 Straight-Line and...Ch. 9 - Prob. 6BECh. 9 - BRIEF EXERCISE 9.7 Disposal of Plant Asset Taylor...Ch. 9 - Prob. 8BECh. 9 - Prob. 9BECh. 9 - Prob. 10BECh. 9 - Prob. 1ECh. 9 - Prob. 2ECh. 9 - Prob. 3ECh. 9 - Prob. 4ECh. 9 - EXERCISE 9.5 Evaluation of Disclosures in Annual...Ch. 9 - EXERCISE 9.6 Revision of Depreciation...Ch. 9 - Prob. 7ECh. 9 - Prob. 8ECh. 9 - Prob. 9ECh. 9 - EXERCISE 9.10 Ethics: “Let the Buyer Beware” Bill...Ch. 9 - Prob. 11ECh. 9 - Prob. 13ECh. 9 - EXERCISE 9.14 Units-of-Output Depreciation...Ch. 9 - Prob. 15ECh. 9 - Prob. 1APCh. 9 - Prob. 2APCh. 9 - Prob. 3APCh. 9 - Prob. 4APCh. 9 - Prob. 5APCh. 9 - Prob. 6APCh. 9 - Prob. 7APCh. 9 - Prob. 8APCh. 9 - Prob. 1BPCh. 9 - Prob. 2BPCh. 9 - Prob. 3BPCh. 9 - Prob. 4BPCh. 9 - PROBLEM 9.5B Accounting for Intangible...Ch. 9 - Prob. 6BPCh. 9 - Prob. 7BPCh. 9 - Prob. 8BPCh. 9 - Prob. 1CTCCh. 9 - Prob. 2CTCCh. 9 - CASE 9.3 Depreciation Policies in Annual...Ch. 9 - Prob. 4CTC
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Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License