Question

On January 1, 2021, the Smith Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $39,000. The expenditures made to acquire the asset were as follows: Purchase price $181,500 Freight charges 4,000 Installation charges 6,500Smith's policy is to use the double-declining-balance (DDB) method of depreciation in the first two years of the equipment’s life and then switch to straight line the third year of the equipment’s life. What is the amount of depreciation expense for the year ended December 31, 2023?

Answer 1

The Depreciation expense for the year ended December 31, 2023 is $11,500

Step-by-step explanation:

According to the given data we have the following:

Cost of the asset = $181,500+$4,000+$6,500

Cost of the asset = $192,000

Useful life = 8 years

Residual value = 39,000

Double depreciation rate = (100/8)*2 = 25%

In order to calculate the the amount of depreciation expense for the year ended December 31, 2023, we need to calculate first the Depreciation expense for year end 31 December 2021 and the Depreciation expense for year end 31 December 2022 as follows:

Depreciation expense for year end 31 December 2021 = $192,000*25% = $48,000

Depreciation expense for year end 31 December 2022 = ($192,000-$48,000)*25% = $36,000

Therefore, Book value of asset on 1 January 2023 = 192,000-48,000-36,000

= $108,000

If the Remaining life of asset = 6 years , the Depreciation expense for year ending 31 December 2023 would be calculated as follows:

Depreciation expense for year ending 31 December 2023 = ($108,000-$39,000)/6

= $69,000/6

Depreciation expense for year ending 31 December 2023= $11,500

The Depreciation expense for the year ended December 31, 2023 is $11,500