Becker Office Service purchased a new computer system on January 1, 2018, for $3
ID: 2332960 • Letter: B
Question
Becker Office Service purchased a new computer system on January 1, 2018, for $31,900. It is expected to have a five-year useful life and a $3,700 salvage value. Becker Office Service expects to use the computer system more extensively in the early years of its life.
Calculate the depreciation expense for each of the five years, assuming the use of double-declining-balance depreciation. (Enter all amounts as positive values. Do not round intermediate calculations. Round "SL rate" answers to 2 decimal places. Round your answers to the nearest dollar amount.)
Assume that Becker Office Service sold the computer system at the end of the fourth year for $18,000. Compute the amount of gain or loss using each depreciation method. (Negative amounts should be indicated with a minus sign. Do not round intermediate calculations. Round the final answers to nearest dollar amount.)
Explanation / Answer
Double Declining Method Year Opening book Value Depriciation Closing Value Year 1 31,900 12,760 19,140 Year 2 19,140 7,656 11,484 Year 3 11,484 4,594 6,890 Year 4 6,890 2,756 4,134 Year 5 4,134 434 3,700 Formula Declining Balance rate Double of Straight rate on closing Value Use full Life 5 year SL rate 1/5 20% Declining Balance rate 20%*2 40% Straight Rate Year Opening book Value Depriciation Closing Value Year 1 31,900 5,640 26,260 Year 2 26,260 5,640 20,620 Year 3 20,620 5,640 14,980 Year 4 14,980 5,640 9,340 Year 5 9,340 5,640 3,700 Yearly Depriciation (31900-3700)/5 5640 If Sold on 4th Year Double Declining Method Book Value at end of 4th Year $4,134.24 Sale Value $18,000.00 Profit $13,865.76 Straight Line Method Book Value at end of 4th Year $9,340.00 Sale Value $18,000.00 Profit $8,660.00
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