Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000
ID: 2517639 • Letter: L
Question
Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000. The asset is expected to have a service life of 12 years and a residual value of $50,000.(a) Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. (b) Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the- years’-digits method. (c) Compute the amount of depreciation for each of Years 1 through 3 using the double- declining-balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.) Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000. The asset is expected to have a service life of 12 years and a residual value of $50,000.
(a) Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. (b) Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the- years’-digits method. (c) Compute the amount of depreciation for each of Years 1 through 3 using the double- declining-balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.)
(a) Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. (b) Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the- years’-digits method. (c) Compute the amount of depreciation for each of Years 1 through 3 using the double- declining-balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.) (a) Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. (b) Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the- years’-digits method. (c) Compute the amount of depreciation for each of Years 1 through 3 using the double- declining-balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.)
Explanation / Answer
(a). Straight-line depreciation method;
Cost of equipment is given = $518000
Useful life = 12 years
Residual value = $50000
Annual depreciation will be calculated as follow;
Annual depreciation ($518000 – $50000) / 12 = $39000
Year
Depreciation
1
$39000
2
$39000
3
$39000
(b). Sum-of-the- years’-digits method;
Cost of equipment is given = $518000
Useful life = 12 years
Residual value = $50000
Depreciable value ($518000 - $50000) = $468000
Sum of the Years' Digits = n(n + 1) / 2
Sum of the Years' Digits 12 (12 + 1) / 2 = 78
Year
Depreciable value
Depreciation factor
Calculation
Annual depreciation
1
$468000
12 / 78
($468000 * 12 / 78)
$72000
2
$468000
11 / 78
($468000 * 11 / 78)
$66000
3
$468000
10 / 78
($468000 * 10 / 78)
$60000
(C). Double- declining-balance method;
Cost of equipment is given = $518000
Useful life = 12 years
Residual value = $50000
Annual depreciation will be calculated as follow;
Annual depreciation ($518000 – $50000) / 12 = $39000
Thus rate of depreciation ($39000 / $468000) = 8.3333
Hence, Double-declining rate of depreciation will be (8.3333 * 2) = 16.67%
Year
Book value of equipment
Rate of depreciation
Annual depreciation
1
$518000
16.67%
$86351
2
($518000 - $86351) = $431649
16.67%
$71956
3
($431649 - $71956) = $359693
16.67%
$59961
Year
Depreciation
1
$39000
2
$39000
3
$39000
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