Sandblasting equipment acquired at a cost of $47,000 has an estimated residual v

Question

Sandblasting equipment acquired at a cost of $47,000 has an estimated residual value of $3,000 and an estimated useful life of 20 years. It was placed in service on October 1 of the current fiscal year, which ends on December 31. If necessary, round your answers to the nearest cent. a. Determine the depreciation for the current fiscal year and for the following fiscal year by the straight-line method. Depreciation Year 1 Year 2 b. Determine the depreciation for the current fiscal year and the following fiscal year by the double-declining-balance method Depreciation Year 1 Year 2

Explanation / Answer

Original Cost of Equipment = $ 47,000 Salvage value = $ 3,000 Estimated life = 20 years Depreciable amount = Cost-Salvage = 47,000-3,000 = $ 44,000 Annual Depreciation Under SLM = Depreciable amount/ Life = $ 44,000 /20 = $2,200 Rate as per SLm = Annual Dep/ Depreciable amount *100 = 2200 /44,000 *100 = 5% Rate for Double declining Method = 2*5% =10% (as it is double the rate of SLM) Depreciation Expense under SLM: Year 1(For 3 months) = $ 2200 *3/12 = $ 550 Year 2 (For one year ) = $ 2200 Depreciation under Double declining Method: Year 1(For 3 months) = 47,000*10%*3/12 = $1175 Book vale at the end of Year 1 = $ 47,000 - $1175 = $ 45,825 Year 2(For one year ) = book value in the beginning *10%= 45825 *10% = $4,583 ReqA: Dep Under SLM YEAR 1 $550 YEAR 2 $2,200 ReqB: Dep under Double declining method: YEAR 1 $1,175 YEAR 2 $4,583

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