Practice Exercise 11-1 Pharoah Company purchases equipment on January 1, Year 1,
ID: 2520675 • Letter: P
Question
Practice Exercise 11-1 Pharoah Company purchases equipment on January 1, Year 1, at a cost of $267,000. The asset is expected to have a service life of 6 years and a salvage value of $20,000. Compute the amount of depreciation for each of Years 1 and 2 using the straight-line depreciation method. Depreciation for Year1 Depreciation for Year 2 s Compute the amount of depreciation for each of Years 1 and 2 using the sum-of-the-years'-digits method Depreciation for Year 1 Depreciation for Year 2 Compute the amount of depreciation for each of Years 1 and 2 using the double-declining-balance method. (Round answers to O decimal places, e.g. 45,892.) Depreciation for Year 1 Depreciation for Year 2 sExplanation / Answer
Answers
A
Cost
$ 2,67,000.00
B
Residual Value
$ 20,000.00
C=A - B
Depreciable base
$ 2,47,000.00
D
Life [in years]
6
E=C/D
Annual SLM depreciation
$ 41,166.67
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 2,67,000.00
$ 41,166.67
$ 2,25,833.33
$ 41,166.67
2
$ 2,25,833.33
$ 41,166.67
$ 1,84,666.67
$ 82,333.33
A
Cost
$ 2,67,000.00
B
Residual Value
$ 20,000.00
C=A – B
Depreciable base
$ 2,47,000.00
1+2+3+4+5+6
Sum of digits
21
Year
Depreciable base
Formula
Depreciation expense
Accumulated Depreciation
Ending Book Value
1
$ 2,47,000.00
[247000 x 6/21]
$ 70,571.43 or $70,571
$ 70,571.43
$ 1,96,428.57
2
$ 2,47,000.00
[247000 x 5/21]
$ 58,809.52 or $58,810
$ 1,29,380.95
$ 1,37,619.05
A
Cost
$ 2,67,000.00
B
Residual Value
$ 20,000.00
C=A - B
Depreciable base
$ 2,47,000.00
D
Life [in years]
6
E=C/D
Annual SLM depreciation
$ 41,166.67
F=E/C
SLM Rate
16.67%
G=F x 2
DDB Rate
33.33%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
1
$ 2,67,000.00
33.33%
$89,000
2
$ 1,78,000.00
33.33%
$59,333
A
Cost
$ 2,67,000.00
B
Residual Value
$ 20,000.00
C=A - B
Depreciable base
$ 2,47,000.00
D
Life [in years]
6
E=C/D
Annual SLM depreciation
$ 41,166.67
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