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A company acquires equipment at a cost of $32,900 on January 3, 2004. Management estimates the equipment will have a residual value of $4,700 at the end of its 4-year useful life. Assume that the company uses the diminishing-balance method and that the diminishing-balance depreciation rate is double the straight-line rate. Calculate the depreciation expense for each year of the equipment’s life.

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Answer:

Explanation:

To calculate the depreciation expense for each year of the equipment's life using the diminishing-balance method, we need to first find the straight-line rate, and then find the diminishing-balance rate by doubling the straight-line rate.

Step 1: Calculate the straight-line rate

The straight-line rate can be calculated as follows:

SLR = (Cost - Residual Value) / Useful Life

SLR = (32900 - 4700) / 4

SLR = $27,600 / 4

SLR = $6,900 per year

Step 2: Calculate the diminishing-balance rate

The diminishing-balance rate can be calculated as follows:

DBR = 2 * SLR

DBR = 2 * $6,900

DBR = $13,800

Step 3: Calculate the depreciation expense for each year

The depreciation expense for each year can be calculated as follows:

Year 1: Depreciation Expense = Cost * (DBR / 2)

Year 1: Depreciation Expense = $32,900 * ($13,800 / 2)

Year 1: Depreciation Expense = $32,900 * $6,900

Year 1: Depreciation Expense = $227,621

Year 2: Depreciation Expense = (Cost - Year 1 Depreciation) * (DBR / 2)

Year 2: Depreciation Expense = ($32,900 - $22,761) * ($13,800 / 2)

Year 2: Depreciation Expense = $10,139 * $6,900

Year 2: Depreciation Expense = $70,223

Year 3: Depreciation Expense = (Cost - Year 1 Depreciation - Year 2 Depreciation) * (DBR / 2)

Year 3: Depreciation Expense = ($32,900 - $22,761 - $70,223) * ($13,800 / 2)

Year 3: Depreciation Expense = $10,016 * $6,900

Year 3: Depreciation Expense = $68,609

Year 4: Depreciation Expense = (Cost - Year 1 Depreciation - Year 2 Depreciation - Year 3 Depreciation) * (DBR / 2)

Year 4: Depreciation Expense = ($32,900 - $22,761 - $70,223 - $68,609) * ($13,800 / 2)

Year 4: Depreciation Expense = $21,307 * $6,900

Year 4: Depreciation Expense = $146,763

So, the depreciation expenses for each year of the equipment's life are:

Year 1: $22,761

Year 2: $70,223

Year 3: $68,609

Year 4: $146,763

This is how you can calculate the depreciation expense for each year of the equipment's life using the diminishing-balance method.

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