Equipment costing $76,000 was purchased by Spence, Inc., at the beginning of the

Question

Equipment costing $76,000 was purchased by Spence, Inc., at the beginning of the current year. The company will depreciate the equipment by the declining-balance method, but it has not determined whether the rate will be at 150 percent or 200 percent of the straight-line rate. The estimated useful life of the equipment is eight years.

Prepare a comparison of the two alternative rates for management for the first two years Spence owns the equipment.(Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Equipment costing $76,000 was purchased by Spence, Inc., at the beginning of the current year. The company will depreciate the equipment by the declining-balance method, but it has not determined whether the rate will be at 150 percent or 200 percent of the straight-line rate. The estimated useful life of the equipment is eight years.

Explanation / Answer

Straight line rate per year = 100%/8 = 12.5%
Double declining balance rate = 12.5% x 2 = 25% per year
150% declining balance rate = 12.5% x 1.5 = 18.75% per year

Year 1

Double declining balance depreciation: 76000 x 25% = $19000

150% declining balance depreciation = 76000 x 18.75% = $14250

Excess of double declining balance: $4750

Year 2

Double declining balance depreciation: 19000 x 0.75 = $14250

150% declining balance depreciation = 14250 x 81.25% = $11578

Exces of double declining balance : $2672

Hope this helps!

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