a concert production company. On 1/1/18, the company purchases new sound 800.000

Question

a concert production company. On 1/1/18, the company purchases new sound 800.000 cash. The expected residual value of the equipment is ompany estimates that the equipment will be used to produce 40 concerts over its $40.000 and the expected useful life is 5 years. The usefal life (10 concerts in 2018, 9 In the bexes below, show the balance of Depreciation Expense on Star's Imcome Statements Depreciatiom on Star's Balance Sheets for the fiestw earz of the eqwipment's unful lfe. i and to the aearest cont. SHOW YOUR CALCULATIONS BELOW PART A-STRAIGHT LINE DEPRECIATION Year ended Yearmed :10 ,000-4000 Income Statemcnt Depreciation Expemse 1100030 _asof 12/31/18 As or 123110 L-?31De9640ou_1- Accumulated Depreciation 2010 180000 2011 1 200 01.50 000 PART B-PRODUCTION DEPRECIATION Income Statement Depreciation Expense 12/31/Is 12/31/19 Balance Shes As of 12/31/18 As of 12/31/19 Accumulated Depreciation PART C-DOUBLE-DECLINING BALANCE DEPRECIATION Year ended 12/31/18 Year ended 12/31/19 Depreciation Expense Balance Sheet Accumulated Depreciation As of 12/31/18 As of 12/31/19

Explanation / Answer

Part A - Straight line depreciation

Depreciable cost = $800000 - $40000 = $760000

Straight line depreciation rate = 100%/5 years = 20%

Annual depreciation = $760000 x 20% = $152000

Part B - Production Depreciation

Depreciation per concert = $760000/40 = $19000

12/31/18: 10 x $19000 = $190000

12/31/19: 9 x $19000 = $171000

Part C - Double declining balance depreciation

Straight line depreciation rate = 100%/5 years = 20%

Double declining depreciation rate = 200% x 20% = 40%

12/31/18: 40% x $800000 = $320000

12/31/19: 40% x ($800000 - $320000) = 40% x $480000 = $192000

Year ended Year ended Income Statement 12/31/18 12/31/19 Depreciation expense 152000 152000 Balance Sheet Accumulated depreciation 152000 304000

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