04_Chapters7,8,9

04_Chapters7,8,9 - BUS 214, Financial Accounting...

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DeprecEx BUS 214, Financial Accounting Depreciation Exercise Depreciation methods: Straight-line — (Cost - Estimated Salvage)/(Estimated Useful Life) Double-declining-balance — (Beginning of year Book Value) x (1/Estimated Useful Life) x 2 Switch to Straight-line depreciation in the year when Straight-line depreciation is greater than Double-declining-balance depreciation The formula for Straight-line depreciation in this instance is: (Beginning of year Book value - Estimated Salvage)/(Estimated Remaining Life) Sum-of-the-years’-digits — (Cost - Estimated Salvage) x (Estimated Useful Life - Age)/(Year Sum) Assumed facts: Cost of equipment $120,000 Estimated salvage value $10,000 Estimated useful life 10 years Required: A. Calculate depreciation for each of the 10 years of the useful life of the equipment, using— 1. The straight-line method, 2. The Double-declining-balance method (with and without switch-over to Straight-line), and 3. The Sum-of-the-years’-digits method. B. Prepare journal entries to record depreciation expense on the above equipment during the first 2 years of its useful life, using the straight-line method.
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Cost $900,000 Life in years 10 Salvage $30,000 Beginning of year Beginning of year Double-declining Depreciation Accumulated Book -balance Straight-line Expense Year Cost Depreciation Value Depreciation Depreciation Recorded 1 900,000 0 900,000 180,000 87,000 180,000 2 900,000 180,000 720,000 144,000 76,667 144,000 3 900,000 324,000 576,000 115,200 68,250 115,200 4 900,000 439,200 460,800 92,160 61,543 92,160 5 900,000 531,360 368,640 73,728 56,440 73,728 6 900,000 605,088 294,912 58,982 52,982 58,982 7 900,000 664,070 235,930 47,186 51,482 51,482 8 900,000 715,553 184,447 51,482 9 900,000 767,035 132,965 51,482 Double-Declining-Balance Depreciation with Switchover to Straight-Line 10 900,000 818,517 81,483 51,483 900,000 870,000 30,000 870,000 DDB formula: (Book value) x 1/Life x 2 SL formula: [(Book value) - Salvage]/(Remaining life) Journal entries each year Depreciation expense Accumulated depreciation--Equipment Retained earnings Depreciation expense Journal entry at the end of year 8, assuming the asset was sold at Salvalge value
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Cost xx,xxx xx,xxx xx,xxx etc. Accumulated depreciation -- Equipment Fixed Assets and Accumulated Depreciation Equipment
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1 DeprecExSol BUS 214, Financial Accounting Solution to Depreciation Exercise A. Depreciation expense computations. 1. Straight-line method. Year 1: ($120,000 - $10,000)/10 years $ 11,000 Year 2: ($120,000 - $10,000)/10 years 11,000 Year 3: ($120,000 - $10,000)/10 years 11,000 Year 4: ($120,000 - $10,000)/10 years 11,000 Year 5: ($120,000 - $10,000)/10 years 11,000 Year 6: ($120,000 - $10,000)/10 years 11,000 Year 7: ($120,000 - $10,000)/10 years 11,000 Year 8: ($120,000 - $10,000)/10 years 11,000 Year 9: ($120,000 - $10,000)/10 years 11,000 Year 10: ($120,000 - $10,000)/10 years 11,000 $ 110,000 2. Double-decline-balance method. DDB
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04_Chapters7,8,9 - BUS 214, Financial Accounting...

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