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Chapter 11: Q4BE (page 584)

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.

Short Answer

Expert verified
  1. Depreciation expense = $20,000
  2. Depreciation expense = $5,000

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of the Depreciation

Depreciation expense is an expense that is incurred on a tangible asset due to obsolescence or the passage of time on that asset. A company has a different option for determining depreciation but straight-line depreciation is the simplest one.

02

(a) Computing depreciation using the double-declining balance method.

Calculating double-declining rate

Double declining rate=1Useful life×2=18×2=25%


Calculating depreciation expense

Depreciation expense=Cost of asset×Double declining rate=$80,000×25%=$20,000


03

(b) Computing depreciation using the double-declining balance method.

Calculating depreciation expense

Depreciation expense=Cost of asset×Double declining rate×Number in monthMonth in a year=$80,000×25%×312=$5,000

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Most popular questions from this chapter

(Depreciation Computations—Five Methods, Partial Periods) Muggsy Bogues Company purchased equipment for \(212,000 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of \)12,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2017, Bogues uses the equipment for 525 hours and the equipment produces 1,000 units.

Instructions

Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31.

  1. Straight-line method for 2017.
  2. Activity method (units of output) for 2017.
  3. Activity method (working hours) for 2017.
  4. Sum-of-the-years’-digits method for 2019.
  5. Double-declining-balance method for 2018.

In what way may the use of percentage depletion violate sound accounting theory?

In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of \(8,113 million, end-of-the-year total assets of \)8,323 million, total sales of \(8,268 million, and net income of \)807 million.

(a) Compute Campbell’s asset turnover.

(b) Compute Campbell’s profit margin on sales.

(c) Compute Campbell’s return on assets using

(1) asset turnover and profit margin and

(2) net income. (Round to two decimal places.)

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