SIMS 8 - DepreciationMethods(4GradableItems 1 $90,000., ()...

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Depreciation Methods  (4 Gradable Items)  1. $90,000.  Under the straight-line method, depreciation expense is a constant amount for each  period equal to the depreciable base (historical cost - salvage value) divided by the estimated  useful life of the asset. Thus, depreciation expense for Year 5 under the straight-line method is  $90,000 [($864,000 - $144,000)  ÷  8].  2. $162,000.  The DDB method applies a constant rate equal to 200% of the straight-line rate to the  asset’s carrying amount at the beginning of each year. Salvage value is not considered except to  determine the minimum below which the asset’s carrying amount may not be reduced. The DDB  depreciation rate is 25% [2  ×  (100%  ÷  8 years)]. For Year 5, the carrying amount at the beginning  of the year is $648,000 [$864,000 - ($864,000  ×  .25)], and depreciation expense is $162,000  ($648,000  ×  .25).  3. $140,000.  SYD depreciation is calculated on a constant depreciable base equal to the original cost  minus the salvage value, multiplied by the SYD fraction (remaining useful life  ÷  the sum of the  digits of the total years of the useful life). In this case, the denominator is 36 {[8  ×  (8 + 1)]  ÷  2},  and the numerator is 7. The depreciable base is $720,000 ($864,000 - $144,000). Thus,  depreciation expense for Year 5 under the SYD method is $140,000 [$720,000  ×  (7  ÷  36)].  4. $120,000.  The units-of-production method allocates asset cost based on the level of production.  The depreciable base is $720,000 ($864,000 - $144,000). Hence, depreciation expense for Year 5  under the units-of-production method is $120,000 [$720,000  ×  (300,000 units  ÷  1,800,000 units)].  Capitalized Cost  (4 Gradable Items)  1. $404,000.  The costs of acquiring and preparing land for its expected use are capitalized. For  example, the price should include not only the cash price but also any encumbrances assumed  (such as mortgages or tax liens). The cost of land also includes transaction costs, e.g., surveying  costs, legal fees, brokers’ commissions, title insurance, and escrow fees. Site preparation costs  [clearing, draining, filling, leveling the property, and razing existing buildings, minus any  proceeds (such as scrap and timber sales)] are costs of the land, not of the building to be 
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constructed on the land. However, costs of driveways, parking lots, and sprinkler systems are  debited to land improvements, not land. Total capitalized cost is thus $404,000 ($325,000 +  $120,000 - $65,000 + $24,000).  2. $58,500.  If driveways, sprinkler systems, sidewalks, roads, sewers, street lights, etc., have limited  lives and must be maintained and replaced by the owner, they should be debited to land  improvements and depreciated. The total debited to land improvements is thus $58,500 ($40,000 + $18,500). 
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