5 xercise 6-9 Computing and recording straight-line versus double-declining-bala

Question

5 xercise 6-9 Computing and recording straight-line versus double-declining-balance depreciation LO 6-3 At the beginning of 2014, Metal Manufacturing purchased a newc purchased a new computerized drill press for S75,000. It is expected to have a five-year life and a $15,000 salvage Required a. Compute the depreciation for each of the five years, assuming that the company uses value. (1) Straight-line depreciation. (2) Double-declining-balance depreciation Record the purchase of the drill press and the depreciatio b. n expense for the first year under e straight-line and double-declining-balance methods in a financial statements model like the following one: Net Inc.!|Cash Flow Exp. = - Equity Rev. Assets Cash Drill PressAcc. Dep.Ret. Earn

Explanation / Answer

6-9 :

a. Depreciation for the first year under the straight-line method = ( Cost - Salvage Value ) / Estimated Useful Life = $ ( 75,000 - 15,000) / 5 = $ 12,000.

Depreciation for the first year under the double declining balance method = Cost x Double Declining Rate of Depreciation = $ 75,000 x 100 / 5 x 2 % = $ 30,000.

6 - 10 :

a. Double declining depreciation rate = 100 / 5 x 2 % = 40 %.

b. Depreciation expense per copy = ( Cost - Salvage Value ) / Estimated Number of Copies = $ 40,000 / 2,000,000 = $ 0.02 per copy.

c. Amount of gain ( loss) on sale of the asset = Sale Proceeds - Book Value = $ 7,600 - $ 7,000 = $ 600 ( Gain )

6-14:

Depreciatiable amount = $ ( 72,500 - 12,500) / 3 = $ 20,000 per year

6-15 :

Book value of shredder = $ 6,000. ( The repairs being in the nature of revenue expenditure, should not be capitalized)

Book value of the building = $ ( 110,000 - 30,000 ) + $ 12,000 = $ 92,000.

The replacement of the roof is a capital expenditure, as it extends the life of the building by another 5 years. Hence the roof replacement cost of $ 12,000 should be capitalized.

9-8 :

Working Capital = Current Assets - Current Liabilities = $ 300,000 - $ 200,000 = $ 100,000.

Currrent Ratio = Current Assets / Current Liabilities = $ 300,000 / 200,000 = 1.50 : 1

Debt to Assets Ratio = Total Liabilities / Total Assets = $ 800,000 / $ 1,250,000 * 100 = 64 %.

Debt to Equity Ratio = Total Liabilities / Common Stock and Retained Earnings = $ 800,000 / $ 450,000 = 1.78 times or 178 %

9 - 10 :

Times Interest Earned = Operating Income / Interest Expense = $ ( 42,000 + 12,000 + 6,000) / $ 6,000 = 10 times.

2014 2015 2016 2017 2018 $ $ $ $ $ Double Declining Balance Depreciation 18,800 11,280 6,768 3,152 0

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