Question

At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $270,000. It is expected to have a five-year life and a $40,000 salvage value. Required a. Compute the depreciation for each of the five years, assuming that the company uses (1) Straight-line depreciation. (2) Double-declining-balance depreciation.

Answer 1

Depreciation Straight Line Expense= 230,000/5= $ 46,000

Step-by-step explanation:

Depreciation Straight Line Method= Cost - Salvage Value/ Useful Life

Depreciation Straight Line Method= $270,000- $40,000/5

Depreciation Straight Line Method= 230,000/5= $ 46,000

As it is straight line depreciation each year the depreciation expense will be the same . It will not change and hence will be $ 46,000

Straight Line Rate= 100%/ useful Life= 100%/5 = 20%

Double Declining Method = 2 * Straight Line Rate

Double Declining Method = 2 * Straight Line Rate= 2*20%= 40%

Year Book Value Dep Rate Dep Expense Accu. Dep. Book Value

1 $ 270,000 40% $ 108,000 108,000 162,000

2 $ 162000 40% 64,800 172,800 97,200

3 97,200 40% 38,880 211,680 58,320

4 58,320 40% 23328 235,008 34,992

5 32,992 40% 13997 249,005 20,995.2