1. The Golden Broom Cleaning Service acquired new equipment: Cost $118,400 Resid

Question

1. The Golden Broom Cleaning Service acquired new equipment: Cost $118,400 Residual 12,800 Estimated useful life 8 years or 40,000 units Required: a. Determine the book value of the asset at the end of the THIRD year if the straight-line depreciation method is used. b. Determine the depreciation expense for the SECOND year assuming double-declining balance method is used. c. What would be the depreciation expense for the FIRST year if the units-of-production method is used and 6,000 units were produced?

Explanation / Answer

Golden Broom Cleaning Service A book value of the asset at the end of the THIRD year if the straight-line depreciation method is used Depreciation under straight line method Original cost $1,18,400 useful life 8 years Residual value $12,800 Depreciation per year $13,200 (118400-12800)/8 Book Value at the end of the Third year $118400 - ($13200 x 3) $78,800 B depreciation expense for the SECOND year assuming double-declining balance method is used Depreciation under Double -declining balance = 2 x Straight line rate x Beginning NBV Year Book Value Depreciation Depreciation Accumulated Book Value Year Start Percent Expense Depreciation Year End 1 $1,18,400 25.00% 29600 29600 $88,800 2 $88,800 25.00% 22200 51800 $66,600 Depreciation expense for the second year $22,200 C depreciation expense for the FIRST year if the units-of-production method is used and 6,000 units were produced Original cost $1,18,400 Total units 40000 Actual units produced in First Year 6000 Depreciation for First Year $17,760 $ 118400/40000 x 6000

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