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1. Following the depreciation example on page 7-5 of the VLN, determine Straight line depreciation expense year 2?____________ 2. Following the depreciation example on page 7-5 of the VLN, determine Straight line accumulated depreciation year 2?_____________

1. Following the depreciation example on page 7-5 of the VLN, determine Straight line depreciation expense year 2?____________ 2. Following the depreciation example on page 7-5 of the VLN, determine Straight line accumulated depreciation year 2?_____________

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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1. Following the depreciation example on page 7-5 of the VLN, determine Straight line depreciation expense year 2?____________ 2. Following the depreciation example on page 7-5 of the VLN, determine Straight line accumulated depreciation year 2?_____________
PART B: COST ALLOCATION ALL Long-term Assets USED in Operations are considered operational assets. ALLOCATED (depreciated, depleted or amortized). -systematic and rational cost allocation -matching principal Only operational assets will be COST PROPERTY, PLANT & EQUIPMENT (DEPRECIATION) depreciation expense (E+àSE-) and accumulated depreciation (XA+ à A-) NATURAL RESOURCES (DEPLETION) -typically uses activity-based method to determine the amount to deplete INTANGIBLE ASSETS (AMORTIZATION) -typically uses straight line method to determine the amount to amortize -If an intangible asset has an indefinite life, amortization should not be recognized (i.e., Goodwill and most trademarks) Book Value (net book value or carrying value) Accumulated depreciation = Cost 1. Acquisition cost (discussed above) 2. Residual value (salvage value or scrap value) -estimate 3. Estimated useful life (Service Life) -estimate Depreciable cost is the amount of the asset's cost that is expected to be used up to generate revenue over its life. Depreciable cost = Cost – Residual value
Transcribed Image Text:PART B: COST ALLOCATION ALL Long-term Assets USED in Operations are considered operational assets. ALLOCATED (depreciated, depleted or amortized). -systematic and rational cost allocation -matching principal Only operational assets will be COST PROPERTY, PLANT & EQUIPMENT (DEPRECIATION) depreciation expense (E+àSE-) and accumulated depreciation (XA+ à A-) NATURAL RESOURCES (DEPLETION) -typically uses activity-based method to determine the amount to deplete INTANGIBLE ASSETS (AMORTIZATION) -typically uses straight line method to determine the amount to amortize -If an intangible asset has an indefinite life, amortization should not be recognized (i.e., Goodwill and most trademarks) Book Value (net book value or carrying value) Accumulated depreciation = Cost 1. Acquisition cost (discussed above) 2. Residual value (salvage value or scrap value) -estimate 3. Estimated useful life (Service Life) -estimate Depreciable cost is the amount of the asset's cost that is expected to be used up to generate revenue over its life. Depreciable cost = Cost – Residual value
Alternative Depreciation Methods Straight-line (SL) Depreciation expense = Cost – Residual value Life in years Declining-balance (DB) or Accelerated method. (200% maximum Declining rate, if the declining rate is 200% it is called Double Declining Balance) DB Depreciation Rate = Declining rate Life in years Depreciation expense = DB Depreciation Rate x Beginning of the year Book Value Depreciation expense Accumulated depreciation) DB Depreciation Rate x (Cost - Activity-Based (Units of Production) Cost - Residual value Life in units Depreciation rate per unit = production Depreciation expense = Depreciation rate per unit x Units of production for the year Practice A new stamping machine was purchased at a cost of $125,000. The estimated residual value is $20,000, and the estimated useful life is 3 years. The estimated productive life of the machine is 150,000 units. Determine the following for Straight line Depreciation Cost RV Depreciable cost Life Year 1 Depreciation expense Accumulated depreciation Book value Year 2 Depreciation expense Accumulated depreciation Book value Year 3 Depreciation expense Accumulated depreciation Book value
Transcribed Image Text:Alternative Depreciation Methods Straight-line (SL) Depreciation expense = Cost – Residual value Life in years Declining-balance (DB) or Accelerated method. (200% maximum Declining rate, if the declining rate is 200% it is called Double Declining Balance) DB Depreciation Rate = Declining rate Life in years Depreciation expense = DB Depreciation Rate x Beginning of the year Book Value Depreciation expense Accumulated depreciation) DB Depreciation Rate x (Cost - Activity-Based (Units of Production) Cost - Residual value Life in units Depreciation rate per unit = production Depreciation expense = Depreciation rate per unit x Units of production for the year Practice A new stamping machine was purchased at a cost of $125,000. The estimated residual value is $20,000, and the estimated useful life is 3 years. The estimated productive life of the machine is 150,000 units. Determine the following for Straight line Depreciation Cost RV Depreciable cost Life Year 1 Depreciation expense Accumulated depreciation Book value Year 2 Depreciation expense Accumulated depreciation Book value Year 3 Depreciation expense Accumulated depreciation Book value
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Section 179 Deduction and Modified Accelerated Cost Recovery System (MACRS) Depreciation
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