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 11-3 (15–20 minutes)
(a)
20 (20 + 1)
= 210
2
3/4 X 20/210 X ($774,000 – $60,000) = $51,000
for 2010
1/4 X 20/210 X ($774,000 – $60,000)
=
$17,000
+
3/4 X 19/210 X ($774,000 – $60,000)
=
48,450