At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $95,000. It is expected to have a five-year life and a $15,000 salvage value.
At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $95,000. It is expected to have a five-year life and a $15,000 salvage value.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![### Required Information
**[The following information applies to the questions displayed below.]**
At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $95,000. It is expected to have a five-year life and a $15,000 salvage value.
### Questions
c. Prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses:
1. **Straight-line depreciation.**
2. **Double-declining-balance depreciation.**
#### Instructions:
- Complete this question by entering your answers in the tabs below.
---
#### Journal Entry Worksheet
- Record depreciation expense.
---
#### Tabs Description:
1. **Req C1 (Requirement C1):** This tab is to prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses straight-line depreciation.
2. **Req C2 (Requirement C2):** This tab is to prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses double-declining-balance depreciation.
---
##### Steps for Straight-Line Depreciation:
1. Determine the depreciable amount:
\[
\text{Depreciable Amount} = \text{Cost of Asset} - \text{Salvage Value}
\]
2. Calculate the annual depreciation expense:
\[
\text{Annual Depreciation Expense} = \frac{\text{Depreciable Amount}}{\text{Useful Life of Asset}}
\]
3. Make journal entries each year recognizing the depreciation expense.
##### Steps for Double-Declining-Balance Depreciation:
1. Calculate the double-declining balance rate:
\[
\text{Double-Declining Rate} = 2 \times \left(\frac{1}{\text{Useful Life of Asset}}\right)
\]
2. Compute the depreciation expense for each year by applying the rate to the book value of the asset at the beginning of the year.
3. Make journal entries each year recognizing the depreciation expense.
*Note: The Journal Entry Worksheet section at the bottom of the image is for recording the detailed entries based on the above calculations.*](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff74473dc-3178-45bf-9311-360a361a32fe%2F0f5ef566-c76d-499c-a1f5-7812fbea0470%2F5lw7wr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Required Information
**[The following information applies to the questions displayed below.]**
At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $95,000. It is expected to have a five-year life and a $15,000 salvage value.
### Questions
c. Prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses:
1. **Straight-line depreciation.**
2. **Double-declining-balance depreciation.**
#### Instructions:
- Complete this question by entering your answers in the tabs below.
---
#### Journal Entry Worksheet
- Record depreciation expense.
---
#### Tabs Description:
1. **Req C1 (Requirement C1):** This tab is to prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses straight-line depreciation.
2. **Req C2 (Requirement C2):** This tab is to prepare the journal entries to recognize depreciation for each of the five years, assuming that the company uses double-declining-balance depreciation.
---
##### Steps for Straight-Line Depreciation:
1. Determine the depreciable amount:
\[
\text{Depreciable Amount} = \text{Cost of Asset} - \text{Salvage Value}
\]
2. Calculate the annual depreciation expense:
\[
\text{Annual Depreciation Expense} = \frac{\text{Depreciable Amount}}{\text{Useful Life of Asset}}
\]
3. Make journal entries each year recognizing the depreciation expense.
##### Steps for Double-Declining-Balance Depreciation:
1. Calculate the double-declining balance rate:
\[
\text{Double-Declining Rate} = 2 \times \left(\frac{1}{\text{Useful Life of Asset}}\right)
\]
2. Compute the depreciation expense for each year by applying the rate to the book value of the asset at the beginning of the year.
3. Make journal entries each year recognizing the depreciation expense.
*Note: The Journal Entry Worksheet section at the bottom of the image is for recording the detailed entries based on the above calculations.*
![### Depreciation and Purchase of a Computer System - Educational Illustration
#### Required Information:
**[The following information applies to the questions displayed below.]**
At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $95,000. It is expected to have a five-year life and a $15,000 salvage value.
#### Task:
Record the purchase of the computer system and the depreciation expense for the first year under the straight-line and double-declining-balance methods in a horizontal statements model.
**Instruction:**
In the Statement of Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, and FA for financing activity. Leave blank to indicate that an element is not affected by the event. Enter any decreases to account balances and cash outflows with a minus sign.
### Horizontal Statements Model:
#### Copeland Drugstore
| | Balance Sheet | Income Statement | Statement of Cash Flows |
|-----------------|-----------------|----------------------------------|-------------------------|
| | Assets | Stockholders' Equity | |
| | | Retained Earnings | |
| | Cash | Book Value of Computer | Revenue | Expenses | Net Income | |
| | + | | - | = | - | = |
|-----------------|-----------------|----------------------------------|----------|-----------|------------|-------------------------|
| **Straight-line Depreciation** |
| Purchase | | | | | | |
| | | | | | | |
|-----------------|-----------------|----------------------------------|----------|-----------|------------|-------------------------|
| **Double-declining-balance Depreciation** |
| Purchase | | | | | | |
| | | | | | | |
---
### Explanation of Depreciation Methods:
1. **Straight-Line Depreciation:**
- This method evenly spreads the depreciation expense over the asset's useful life. The annual depreciation expense is calculated by subtracting the salvage value from the cost of the asset and then dividing by the useful life.
- Formula: \(\text{Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}\](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff74473dc-3178-45bf-9311-360a361a32fe%2F0f5ef566-c76d-499c-a1f5-7812fbea0470%2F6467uv_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Depreciation and Purchase of a Computer System - Educational Illustration
#### Required Information:
**[The following information applies to the questions displayed below.]**
At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $95,000. It is expected to have a five-year life and a $15,000 salvage value.
#### Task:
Record the purchase of the computer system and the depreciation expense for the first year under the straight-line and double-declining-balance methods in a horizontal statements model.
**Instruction:**
In the Statement of Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, and FA for financing activity. Leave blank to indicate that an element is not affected by the event. Enter any decreases to account balances and cash outflows with a minus sign.
### Horizontal Statements Model:
#### Copeland Drugstore
| | Balance Sheet | Income Statement | Statement of Cash Flows |
|-----------------|-----------------|----------------------------------|-------------------------|
| | Assets | Stockholders' Equity | |
| | | Retained Earnings | |
| | Cash | Book Value of Computer | Revenue | Expenses | Net Income | |
| | + | | - | = | - | = |
|-----------------|-----------------|----------------------------------|----------|-----------|------------|-------------------------|
| **Straight-line Depreciation** |
| Purchase | | | | | | |
| | | | | | | |
|-----------------|-----------------|----------------------------------|----------|-----------|------------|-------------------------|
| **Double-declining-balance Depreciation** |
| Purchase | | | | | | |
| | | | | | | |
---
### Explanation of Depreciation Methods:
1. **Straight-Line Depreciation:**
- This method evenly spreads the depreciation expense over the asset's useful life. The annual depreciation expense is calculated by subtracting the salvage value from the cost of the asset and then dividing by the useful life.
- Formula: \(\text{Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}\
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