Can you further explain this to me to better understand the concept on what I'm supposed to do and what formulas I need to apply.
Can you further explain this to me to better understand the concept on what I'm supposed to do and what formulas I need to apply.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter7: Financial Activities
Section: Chapter Questions
Problem 1DIC
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Can you further explain this to me to better understand the concept on what I'm supposed to do and what formulas I need to apply.
![### Depreciation Exercises
#### Question 1
On January 1, 2018, Mendoza Construction purchased a laser-guided saw for $9,375,000. It costs an additional $125,000 to deliver, install, and calibrate the saw. This machine has a service life of 5 years, at which time it is expected that the device will be disposed of for $100,000 salvage value.
**Mendoza Construction uses the straight-line depreciation method.**
**In Excel:**
a) Prepare a schedule showing annual depreciation expense and accumulated depreciation.
b) Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31, 2020.
**a)**
| Year | Annual Depreciation Expense | Accumulated Depreciation at End of Year |
|------|------------------------------|----------------------------------------|
| 2018 | | |
| 2019 | | |
| 2020 | | |
| 2021 | | |
| 2022 | | |
**b)**
**Property, Plant, & Equipment (2020)**
- Equipment
- Less: Accumulated depreciation
---
#### Graph/Diagram Explanation:
1. The table contains columns for the year, annual depreciation expense, and accumulated depreciation at the end of each year. Currently, the table has placeholders, and the values need to be calculated based on the given data.
### Instructions:
1. **Calculate the Depreciation Expense:**
- **Cost of the Equipment:** $9,375,000
- **Additional Cost (Installation, Calibration):** $125,000
- **Total Cost:** $9,500,000
- **Salvage Value:** $100,000
- **Depreciable Amount:** $9,500,000 - $100,000 = $9,400,000
- **Useful Life:** 5 years
Using the straight-line depreciation method:
\[
\text{Annual Depreciation Expense} = \frac{\text{Depreciable Amount}}{\text{Useful Life}} = \frac{$9,400,000}{5} = $1,880,000
\]
2. **Fill the Table:**
| Year | Annual Depreciation Expense | Accumulated Depreciation at End of Year |
|------|----------------](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F96225137-0ee1-4a88-9272-3a7f449d5f82%2Fd6e0467a-ae4f-4a7c-865d-118cf2c1feef%2F9r4oryw.jpeg&w=3840&q=75)
Transcribed Image Text:### Depreciation Exercises
#### Question 1
On January 1, 2018, Mendoza Construction purchased a laser-guided saw for $9,375,000. It costs an additional $125,000 to deliver, install, and calibrate the saw. This machine has a service life of 5 years, at which time it is expected that the device will be disposed of for $100,000 salvage value.
**Mendoza Construction uses the straight-line depreciation method.**
**In Excel:**
a) Prepare a schedule showing annual depreciation expense and accumulated depreciation.
b) Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31, 2020.
**a)**
| Year | Annual Depreciation Expense | Accumulated Depreciation at End of Year |
|------|------------------------------|----------------------------------------|
| 2018 | | |
| 2019 | | |
| 2020 | | |
| 2021 | | |
| 2022 | | |
**b)**
**Property, Plant, & Equipment (2020)**
- Equipment
- Less: Accumulated depreciation
---
#### Graph/Diagram Explanation:
1. The table contains columns for the year, annual depreciation expense, and accumulated depreciation at the end of each year. Currently, the table has placeholders, and the values need to be calculated based on the given data.
### Instructions:
1. **Calculate the Depreciation Expense:**
- **Cost of the Equipment:** $9,375,000
- **Additional Cost (Installation, Calibration):** $125,000
- **Total Cost:** $9,500,000
- **Salvage Value:** $100,000
- **Depreciable Amount:** $9,500,000 - $100,000 = $9,400,000
- **Useful Life:** 5 years
Using the straight-line depreciation method:
\[
\text{Annual Depreciation Expense} = \frac{\text{Depreciable Amount}}{\text{Useful Life}} = \frac{$9,400,000}{5} = $1,880,000
\]
2. **Fill the Table:**
| Year | Annual Depreciation Expense | Accumulated Depreciation at End of Year |
|------|----------------
Transcribed Image Text:### Depreciation of Lawn Mower using Double-Declining Balance Method
**Question 2**
On January 1, 2022, Wilcox Lawns acquired a Large Lawn Mower for $15,000. This device had a 4-year service life to Wilcox Lawns, at which time it is expected that the equipment will be sold for a $1,000 salvage value.
Wilcox Lawns uses the **double-declining balance depreciation method**.
**In Excel:**
a) Prepare a schedule showing annual depreciation expense and accumulated depreciation.
b) Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31, 2024.
#### a) Depreciation Schedule
| Year | Annual Depreciation Expense | Accumulated Depreciation at End of Year |
|------|------------------------------|----------------------------------------|
| 2022 | | |
| 2023 | | |
| 2024 | | |
| 2025 | | |
#### b) Balance Sheet Representation as of December 31, 2024
**Property, Plant, & Equipment (2024)**
- **Equipment**
- Less: Accumulated depreciation
This method of depreciation is considered an accelerated depreciation method, which means that more depreciation expense is recognized in the early years of the asset's life, and less expense is recognized in the later years. It's particularly useful for assets that quickly lose their value or become obsolete.
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