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On April 29, 2013, Quality Appliances purchased equipment for $260,000. The estimated service life of the equipment is six years and the estimated residual value is $20,000. Quality’s fiscal year ends on December 31. Required: Calculate depreciation for 2013 and 2014 using each of the three methods listed. Quality calculates partial year depreciation based on the number of months the asset is in service. Round all computations to the nearest dollar. 1. Straight-line. 2. Sum-of-the-years’ digits. 3. Double-declining balance

User Fkl
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Answer:

1. Straight-line Depreciation:

To calculate straight-line depreciation, we need to subtract the estimated residual value from the initial cost and divide it by the estimated service life.

Depreciation per year = (Initial cost - Residual value) / Service life

For 2013:

Depreciation for 2013 = ($260,000 - $20,000) / 6 = $40,000

For 2014:

Depreciation for 2014 = ($260,000 - $20,000) / 6 = $40,000

2. Sum-of-the-Years' Digits Depreciation:

To calculate sum-of-the-years' digits depreciation, we need to find the sum of the digits of the years of the asset's useful life.

Sum of the digits = n(n+1)/2, where n is the number of years of useful life.

For the given equipment, n = 6.

Sum of the digits = 6(6+1)/2 = 21

For 2013:

Depreciation for 2013 = (Remaining useful life / Sum of the digits) * (Initial cost - Residual value)

Depreciation for 2013 = (6 / 21) * ($260,000 - $20,000) = $20,000

For 2014:

Depreciation for 2014 = (Remaining useful life / Sum of the digits) * (Initial cost - Residual value)

Depreciation for 2014 = (5 / 21) * ($260,000 - $20,000) = $19,048

3. Double-Declining Balance Depreciation:

To calculate double-declining balance depreciation, we use a depreciation rate that is double the straight-line depreciation rate.

Depreciation rate = (2 / Service life) * 100

For 2013:

Depreciation for 2013 = (Depreciation rate / 100) * (Initial cost - Accumulated depreciation)

Depreciation rate = (2 / 6) * 100 = 33.33%

Depreciation for 2013 = 33.33% * ($260,000 - $0) = $86,667

For 2014:

Depreciation for 2014 = (Depreciation rate / 100) * (Initial cost - Accumulated depreciation)

Depreciation for 2014 = 33.33% * ($260,000 - $86,667) = $57,778

Please note that for subsequent years, the accumulated depreciation from the previous years needs to be considered when calculating depreciation.

Explanation:

User Rettichschnidi
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