LN6_Supplement_Ch_7_8_textbook (1).docx

LN6_Supplement_Ch_7_8_textbook (1).docx - ACCT 6301...

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ACCT 6301: Financial Accounting Table of Contents E7.19 Example for depreciation methods .................................................................................................................................................... 2 E7.24 Claremont company, revising estimates ............................................................................................................................................ 4 Professor Suresh Radhakrishnan 1
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ACCT 6301: Financial Accounting E7.19 Example for depreciation methods Equipment costing $640,000, with an expected useful life of twelve years and an expected salvage value of $20,000, was purchased at the beginning of the year. Calculate the depreciation expense for the first five years using (a) the sum-of-years’ digits method and (b) the double-declining-balance method. Which method would you prefer to use for (a) income tax purposes and (b) financial reporting purchases? Why? Professor Suresh Radhakrishnan 2
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ACCT 6301: Financial Accounting Solution Depreciable cost = Acquisition cost – Salvage value = 640,000 – 20,000 = 620,000 a. Sum-of-the-years’ digits 12 years useful life, implies sum of digits = 1 + 2 + …+11 + 12 = n(n+1)/2 = (12 × 13)/2 = 78 Year Depreciation Rate Depreciable Cost Depreciation Expense 1 12/78 $620,000 $95,385 2 11/78 620,000 87,436 3 10/78 620,000 79,487 4 9/78 620,000 71,538 5 8/78 620,000 63,590 Total $397,436 b. Double-declining balance Year
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