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Chapter 11: Q10E (page 586)

(Depreciation Computations, SYD) Five Satins Company purchased a piece of equipment at the beginning of 2014. The equipment cost \(430,000. It has an estimated service life of 8 years and an expected salvage value of \)70,000. The sum of-the-years’-digits method of depreciation is being used. Someone has already correctly prepared a depreciation schedule for this asset. This schedule shows that \(60,000 will be depreciated for a particular calendar year.

Instructions

Show calculations to determine for what particular year the depreciation amount for this asset will be \)60,000.

Short Answer

Expert verified

Answer

In 2016 the depreciation amount for this asset will be $60,000.

Step by step solution

01

Meaning of Sum of Year’s Digit Method

In this method of accelerated depreciation, the total of the year's digits is multiplied by the number of years. During depreciation, a fraction of the whole year’s worth is subtracted from the object's value.

02

Showing calculations to determine for what particular year the depreciation amount for this asset will be $60,000.

Computation of depreciable cost

Depreciablecost=Costoftheasset-Salvagevalue=$430,000-$70,000=$360,000

Calculating the sum of year digits

Sumofyear'sdigit=nn+12=88+12=8×92=36

Computation of depreciation by using the sum of year digits method

Year

Depreciation base

Remaining life of the asset

Depreciation fraction

Depreciation

expense

Accumulated

depreciation

2014

$360,000

8

836

$80,000

$80,000

2015

$360,000

7

736

$70,000

$150,000

2016

$360,000

6

636

$60,000

$210,000

2017

$360,000

5

536

$50,000

$260,000

2018

$360,000

4

436

$40,000

$300,000

2019

$360,000

3

336

$30,000

$330,000

2020

$360,000

2

236

$20,000

$350,000

2021

$360,000

1

136

$10,000

$360,000

Thus, the amount of $60,000 depreciation will be equal I the year 2016.

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Most popular questions from this chapter

Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the sum-of-the-years’-digits method. (b) Compute 2017 depreciation expense using the sum-of-the-years’-digits method, assuming the machinery was purchased on April 1, 2017.

Lockard Company purchased machinery on January 1, 2017, for \(80,000. The machinery is estimated to have a salvage value of \)8,000 after a useful life of 8 years.

Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the double-declining-balance method. (b) Compute 2017 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2017.

Identify the factors that are relevant in determining the annual depreciation charge, and explain whether these factors are determined objectively or whether they are based on judgment.

Andrea Torbert purchased a computer for \(8,000 on July 1, 2017. She intends to depreciate it over 4 years using the double-declining-balance method. Salvage value is \)1,000. Compute depreciation for 2018.

(Impairment) Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for \(10,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Roland’s equipment. Roland’s controller estimates that expected future net cash flows on the equipment will be \)6,300,000 and that the fair value of the equipment is \(5,600,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straight-line depreciation.

Instructions

  1. Prepare the journal entry (if any) to record the impairment at December 31, 2017.
  2. Prepare any journal entries for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be \)5,900,000.
  3. Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018.
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