EXERCISE 11-2 (Continued)
(b)
$50,000 cost [from (a)] – $45,000 total depreciation = $5,000
salvage
value.
(c)
The highest charge to income for Year 1 will be yielded by the double-
declining-balance method.
(d)
The highest charge to income for Year 4 will be yielded by the straight-
line method.
(e)
The method that produces the highest book value at the end of Year 3
would be the method that yields the lowest accumulated depreciation
at the end of Year 3, which is the straight-line method.
Computations:
St.-line = $50,000 – ($9,000 + $9,000 + $9,000) = $23,000 book value,
end of Year 3.
S.Y.D. = $50,000 – ($15,000 + $12,000 + $9,000) = $14,000 book value,
end of Year 3.
D.D.B. = $50,000 – ($20,000 + $12,000 + $7,200) = $10,800 book value,
end of Year 3.
(f)
The method that will yield the highest gain (or lowest loss) if the asset
is sold at the end of Year 3 is the method which will yield the lowest
book value at the end of Year 3, which is the double-declining balance
method in this case.
EXERCISE 11-4 (15–25 minutes)
(a)
$279,000 – $15,000 = $264,000; $264,000 ÷ 10 yrs. = $26,400
(b)
$264,000 ÷ 240,000 units = $1.10; 25,500 units X $1.10 = $28,050
(c)
$264,000 ÷ 25,000 hours = $10.56 per hr.; 2,650 hrs. X $10.56 = $27,984
(d)
10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 55 OR
n(n + 1)
=
10(11)
= 55
2
2
10
X $264,000 X 1/3 =
$16,000
55
9
X $264,000 X 2/3 =
28,800
55
Total for 2011
$44,800