commercial substance. (Round all computations to the nearest dollar.) 5.) Deprec
ID: 2559423 • Letter: C
Question
commercial substance. (Round all computations to the nearest dollar.) 5.) Depreciation methods On July 1, 2017, Sport Company purchased for $3,600,000 snow-making equipment having an estimated useful life of 5 years with an estimated salvage value of $150,000. Depreciation is taken for the portion of the year the asset is used. Instructions (a) Complete the form below by determining the depreciation expense and year-end book values for 2017 and 2018 using the 1. sum-of-the-years'-digits method. 2. double-declining balance method Sum-of-the-Years'-Digits Method 2017 2018 Equipment $3,600,000 $3,600,000 Intermediate Accounting I Take Home Final Exam Due: 12/6/2017 Year-End Book Value Depreciation Expense for the Year Double-Declining Balance Method Equipment Less: Accumulated Depreciation Year-End Book Value Depreclation Expense for the Year $3,600,000 $3,600,000 b) Assume the company had used straight-line depreciation during 2017 and 2018. During 2019 9, the company determined that the equipment would be useful to the company for only one more year beyond 2019. Salvage value is estimated at $200,000 (1) Compute the amount of depreciation expense for the 2019 income statement. (2) What is the depreciation base of this asset?Explanation / Answer
1. Double declining method of Depreciation
Depreciation for the year 2017 = $3,600,000 / 5 years x 2 = $1,440,000 / 12 x 6 = $720,000
Book value at beginning of 2018 = $3,600,000 - 720,000 = $2,880,000
Depreciation for the year 2018 = $2,880,000 / 5 years x 2 = $1,152,000
Double Declining method of Depreciation
Double Declining
2017
2018
Equipment
3,600,000
3,600,000
Less: Accumulated Depreciation
0
720,000
Year -end book value
3,600,000
2,880,000
Depreciation expense
720,000
1,152,000
NOTE: salvage value is ignored in case of double declining method.
2. Calculation of Depreciation under sum of the year digit method
Sum of the useful Life of asset = 1+2+3+4+5 =15
Depreciation for each year = Book value of asset x useful remaining life / sum of the useful life
Depreciation for 2017 = (3,600,000-150,000) x 5 / 15 = $1,150,000 / 12months x 6 months = $575,000
Depreciation for 2018 = (3,600,000-150,000) x 4 / 15 = $920,000
Sum of the year digit
2017
2018
Equipment
3,600,000
3,600,000
Less: Accumulated Depreciation
0
575,000
Year -end book value
3,600,000
3,025,000
Depreciation expense
575,000
920,000
Double Declining
2017
2018
Equipment
3,600,000
3,600,000
Less: Accumulated Depreciation
0
720,000
Year -end book value
3,600,000
2,880,000
Depreciation expense
720,000
1,152,000
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