Exercise 8-4: Koffman’s Warehouse purchased a forklift on January 1, 2016, for $6,000. The forklift is expected to last for five years and has a residual value of $600. Koffman’s uses the double-declining-balance method for depreciation. Calculate the depreciation expense, accumulated depreciation, and book value for each year of the forklifts life. Prepare the journal entry to record depreciation expense for 2016.
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.
Exercise 8-4: Koffman’s Warehouse purchased a forklift on January 1, 2016, for $6,000. The forklift is expected to last for five years and has a residual value of $600. Koffman’s uses the double-declining-balance method for
- Calculate the depreciation expense,
accumulated depreciation , and book value for each year of the forklifts life. - Prepare the
journal entry to record depreciation expense for 2016. - What factors may have influenced Koffman to use the double-declining-balance method?
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