Question

Two Methods A Kubota tractor acquired on January 8 at a cost of $270,000 has an estimated useful life of ten years. Assuming that it will have no residual value. a. Determine the depreciation for each of the first two years by the straight-line method. b. Determine the depreciation for each of the first two years by the double-declining-balance method. Do not round the double-declining balance rate. If required, round your final answer to the nearest dollar.

Answer 1

a. $27,000

b. $54,000 and $43,200

Step-by-step explanation:

The calculation of the depreciation expense for the two years are presented below:

a) Straight-line method:

= (Acquired value of tractor - residual value) ÷ (estimated useful life)

= ($270,000 - $0) ÷ (10 years)

= ($270,000) ÷ (10 years)

= $27,000

In this method, the depreciation is same for all the remaining useful life

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= One ÷ estimated useful life

= 1 ÷ 10

= 10%

Now the rate is double So, 20%

In year 1, the original cost is $270,000, so the depreciation is $54,000 after applying the 40% depreciation rate

And, in year 2, the depreciation expense would be

= ($270,000 - $54,000) × 20%

= $216,000 × 20%

= $43,200