Question

Freedom Co. purchased a new machine on July 2, 2019, at a total installed cost of $49,000. The machine has an estimated life of five years and an estimated salvage value of $6,600. Required: Calculate the depreciation expense for each year of the asset's life using: Straight-line depreciation. Double-declining-balance depreciation. How much depreciation expense should be recorded by Freedom Co. for its fiscal year ended December 31, 2019, under each method

Answer 1

Answer:. See explanation

Step-by-step explanation:

1. The depreciation under the straight line method will be calculated as:

= ( cost - salvage value)/no of years

= (49000 - 6600)/5

= $42400/5

= $8480 per year

2. Using the Double-declining-balance depreciation, the depreciation will be calculated thus:

Double declining rate = 8480/42400 × 2 = 40%

Yr 1: beginning book value = $49000

Depreciation rate = 40%

Depreciation = $49000 × 0.4 = $19600

Ending book value = $29400

Yr 2: beginning book value = $29400

Depreciation rate = 40%

Depreciation = $29400 × 0.4 = $11760

Ending book value = $17640

Yr3: beginning book value = $17640

Depreciation rate = 40%

Depreciation = $17640 × 0.4 = $7056

Ending book value = $10584

Yr4: beginning book value = $10584

Depreciation rate = 40%

Depreciation = $3884 Savage value

Ending book value = $6700