On 2010 January 1, Jackson Company purchased equipment for USD 400,000, and inst
ID: 2475169 • Letter: O
Question
On 2010 January 1, Jackson Company purchased equipment for USD 400,000, and installation and testing costs totaled USD 40,000. The equipment has an estimated useful life of 10 years and an estimated salvage value of USD 40,000. If Jackson uses the straight-line depreciation method, the depreciation expense for 2010 is:
a. USD 36,000.
b. USD 40,000.
c. USD 44,000.
d. USD 80,000.
e. USD 88,000.
In the previous Question, if the equipment were purchased on 2010 July 1, and Jackson used the double-declining-balancemethod, the depreciation expense for 2010 would be:
a. USD 88,000.
b. USD 72,000.
c. USD 36,000.
d. USD 44,000.
e. USD 40,000.
Explanation / Answer
Depreciation per annum = Cost of assets – salvage value /life of assets
= $ 400,000- 40,000/10 = 360,000/10
= $ 36,000
Depreciation expense for 2010 is:
a . USD 36,000.
Depreciation % under straight line method = 1/10 years = 10 %
Depreciation under double decline method= Depreciation% under straight line method x2
= 20 %
Depreciation for 2010 ( i.e. 6 months)
= $ 400,000 x 20 % x 6/12 = $ 40,000
Using double-declining-balance method, the depreciation expense for 2010 is :
e. USD 40,000
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