**Educational Content: Depreciation Methods****Scenario:**On July 1, 2025, Sport Company purchased snow-making equipment for $3,600,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $150,000. Depreciation is accounted for the portion of the year the asset is used.**Instructions:**(a) Determine the depreciation expense and year-end book values for 2025 and 2026 using:1. **Sum-of-the-Years'-Digits Method**2. **Double-Declining Balance Method****Sum-of-the-Years'-Digits Method**| Year | 2025 | 2026 ||-------------------|--------------|--------------|| Equipment | $3,600,000 | $3,600,000 || Less: Accumulated Depreciation | ______ | ______ || Year-End Book Value | ______ | ______ || Depreciation Expense for the Year | ______ | ______ |**Double-Declining Balance Method**| Year | 2025 | 2026 ||-------------------|--------------|--------------|| Equipment | $3,600,000 | $3,600,000 || Less: Accumulated Depreciation | ______ | ______ || Year-End Book Value | ______ | ______ || Depreciation Expense for the Year | ______ | ______ |(b) **Straight-Line Depreciation Adjustment:**Assume the company used straight-line depreciation during 2025 and 2026. In 2027, the company determined the equipment would be useful for only one more year beyond 2027, with an estimated salvage value of $200,000.1. Compute the amount of depreciation expense for the 2027 income statement.2. Determine the depreciation base of this asset.This exercise illustrates the differences between depreciation methods, affecting financial statements and asset management strategies.

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Description: **Educational Content: Depreciation Methods****Scenario:**On July 1, 2025, Sport Company purchased snow-making equipment for $3,600,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $150,000. Depreciation i

Depreciation represents the reduction of the value of long term asset of the company. The…

Answered: 2. On July 1, 2025, Sport Company…

Business

Accounting

2. On July 1, 2025, Sport Company purchase estimated useful life of 5 years with an estimat the portion of the year the asset is used.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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**Educational Content: Depreciation Methods**

**Scenario:**
On July 1, 2025, Sport Company purchased snow-making equipment for $3,600,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $150,000. Depreciation is accounted for the portion of the year the asset is used.

**Instructions:**
(a) Determine the depreciation expense and year-end book values for 2025 and 2026 using:

1. **Sum-of-the-Years'-Digits Method**
2. **Double-Declining Balance Method**

**Sum-of-the-Years'-Digits Method**

| Year | 2025 | 2026 |
|-------------------|--------------|--------------|
| Equipment | $3,600,000 | $3,600,000 |
| Less: Accumulated Depreciation | ______ | ______ |
| Year-End Book Value | ______ | ______ |
| Depreciation Expense for the Year | ______ | ______ |

**Double-Declining Balance Method**

| Year | 2025 | 2026 |
|-------------------|--------------|--------------|
| Equipment | $3,600,000 | $3,600,000 |
| Less: Accumulated Depreciation | ______ | ______ |
| Year-End Book Value | ______ | ______ |
| Depreciation Expense for the Year | ______ | ______ |

(b) **Straight-Line Depreciation Adjustment:**
Assume the company used straight-line depreciation during 2025 and 2026. In 2027, the company determined the equipment would be useful for only one more year beyond 2027, with an estimated salvage value of $200,000.

1. Compute the amount of depreciation expense for the 2027 income statement.
2. Determine the depreciation base of this asset.

This exercise illustrates the differences between depreciation methods, affecting financial statements and asset management strategies.

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