A crane has an initial cost of $150,000 and an estimated useful life of 10 years
ID: 1097067 • Letter: A
Question
A crane has an initial cost of $150,000 and an estimated useful life of 10 years. The
salvage value after 10 years of use is estimated to be $40,000. [10 Points]
a. What is the book value at the end of the fifth year if you use the straight line
method of depreciation accounting?
b. What is the book value at the end of the fifth year if you use the sum of the years
method of depreciation accounting?
c. What is the book value at the end of the fifth year if you use the double declining
balance method of depreciation accounting?
Explanation / Answer
(a)using the straight line method
annual depreciation = (150,000 - 40,000)/10 = 11,000
book value at the end of the fifth year = 150,000 - 11,000*5 = 95,000
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(b)using the sum of the years method
1+2+3+...+10 = 55
depreciation for year 1 = (150,000 - 40,000)*10/55 = 20,000
depreciation for year 2 = (150,000 - 40,000)*9/55 = 18,000
depreciation for year 3 = (150,000 - 40,000)*8/55 = 16,000
depreciation for year 4 = (150,000 - 40,000)*7/55 = 14,000
depreciation for year 5 = (150,000 - 40,000)*6/55 = 12,000
book value at the end of the fifth year = 150,000 - 20,000 - 18,000 - 16,000 - 14,000 - 12,000 = 70,000
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(3)using the double declining balance method
annual depreciation rate = 1/10*2 = 20%
depreciation for year 1 = 150,000*.2 = 30,000
depreciation for year 2 = (150,000 - 30,000)*.2 = 24,000
depreciation for year 3 = (150,000 - 30,000 - 24,000)*.2 = 19,200
depreciation for year 4 = (150,000 - 30,000 - 24,000 - 19,200)*.2 = 15,360
depreciation for year 5 = (150,000 - 30,000 - 24,000 - 19,200 - 15,360)*.2 = 12,288
book value at the end of the fifth year = 150,000 - 30,000 - 24,000 - 19,200 - 15,360 - 12,288 = 49,152
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