Question

Partial-Year Depreciation Equipment acquired at a cost of $52,000 has an estimated residual value of $3,000 and an estimated useful life of 10 years. It was placed into service on April 1 of the current fiscal year, which ends on December 31. If necessary, round your answers to the nearest cent.

Required:
a. Determine the depreciation for the current fiscal year and for the following fiscal year by the straight-line method.
b. Determine the depreciation for 20Y5 and for 20Y6 by the double-declining-balance method.

Answer 1

Answer: Please refer to Explanation

Step-by-step explanation:

a) Equipment was purchased on the 1st of April meaning that it was used only 9 months in 20Y5.

The Straight line method of depreciation calls for a uniform depreciation throughout the life of the asset.

The formula is,

= (Cost - Salvage Value) / Years of service

= (52,000 - 3,000) / 10

= $4,900

However on the first year it was only used for 9 months so that has to be accounted for as,

= 4,900 * 9 months / 12 months

= $3,675

Depreciation in first year is $3,675

An entire year now (20Y6)

= (Cost - Salvage Value) / Years of service

= (52,000 - 3,000) / 10

= $4,900

Depreciation in 20Y6 is $4,900

b) Year 20Y5

The double-declining-balance method does not make use of the residual/scrap value and it goes at twice the rate of the Straight line method.

The formula is,

= (Cost - Accumulated Depreciation)/Years of service * 2

= (52,000 - 0)/ 10 * 2

= $10,400

Was used for 9 months so,

= 10,400 * 9 months / 12 months

= $7,800

Year 20Y6

= (Cost - Accumulated Depreciation)/Years of service * 2

= (52,000 - 7,800) / 10 * 2

= 4,420 * 2

= $8,840

Depreciation in 20Y6 using double declining method is $8,840