Question

Computing Depreciation and Accounting for a Change of Estimate Lambert Company acquired machinery costing $110,000 on January 2, 2019. At that time, Lambert estimated that the useful life of the equipment was 6 years and that the residual value would be $15,000 at the end of its useful life. Compute depreciation expense for this asset for 2019, 2020, and 2021 using the: a. straight-line method. Round to the nearest dollar. 2019 Answer 2020 Answer 2021 Answer b. double-declining-balance method. Round to the nearest dollar. 2019 Answer 2020 Answer 2021 Answer c. Assume that on January 2, 2021, Lambert revised its estimate of the useful life to 7 years and changed its estimate of the residual value to $10,000. What would be the new depreciation expense in 2021 for each of the above depreciation methods

Answer 1

To calculate depreciation expense using the straight-line method, divide the cost of the asset minus the residual value by the useful life of the asset. For the double-declining-balance method, apply a constant percentage to the asset's net book value. The new depreciation expense in 2021, after revising the estimate, would be calculated using the new useful life and residual value.

Step-by-step explanation:

Depreciation expense is calculated using the straight-line method by dividing the cost of the asset minus the residual value by the useful life of the asset. For 2019, the depreciation expense would be ($110,000 - $15,000) / 6 = $15,833. For 2020, the depreciation expense would still be $15,833. For 2021, since the estimate changed, the depreciation expense is now ($110,000 - $10,000) / 7 = $14,286.

Using the double-declining-balance method, the depreciation expense is calculated by applying a constant percentage to the asset's net book value. For 2019, the depreciation expense would be $110,000 * 2 / 6 = $36,667. For 2020, the net book value would be $110,000 - $36,667 = $73,333, and the depreciation expense would be $73,333 * 2 / 6 = $24,444. For 2021, the net book value would be $73,333 - $24,444 = $48,889, and the depreciation expense would be $48,889 * 2 / 7 = $13,963.

Answer 2

Answer: please see answers in explanation column

Step-by-step explanation:

a) Under straight-line method,

Depreciation expense =(Cost - residual value) ÷ No of years =

= ($110,000 - $15,000) ÷ 6 years = $15,833 which refers to the yearly depreciation expense.

Therefore, the yearly depreciation expense of $15,833 will be applied to the Years 2019, 2020 and 2021.

Total depreciation for all the three years equals

$15,833 x 3 years = $47,499.

(b) The double-declining method

which is 2 x Straight - Line Depreciation Percentage x Book value

Straight - Line Depreciation Percentage

100% ÷ 6 years = 16.67%,

Therefore, Year 2019= 2 x 16.67% x $110,000 = $36,663

Year 2020=2 x 16.67% x $73,337 ($110,000 - $36,663) = $24,443

Year 2021=2 x 16.67% x $48,894 ($73,337 - $24,443) = $16,296

The total of the three years ie 2019 to 2021 =$77,402

(c) Given that in 2021 which is after 2 years, the revised estimated useful life becomes 7 years and the residual value is $10,000

Depreciation Using the straight-line method becomes

Depreciation expense =(Cost - residual value) ÷ No of years

But Net Book Value, which is the cost at the end of 2019

$110,000 - $15,833 x 2 years = $78,334

Therefore, Depreciation expense= ($78,334 - $10,000) ÷ 7 years = $9,762

Also,

Using double-declining method,

Straight - Line Depreciation Percentage = 100% ÷ 7 years = 14.29%,

Year 2021,

2 x 14.29% x $48,894 ($73,337 - $24,443) = $13,969