January 1, Year 1, for $37,700. It is expected to have a five-year useful life and a $4,000 salvage value. Becker Office Service expects to use the computer system more extensively in the early years of its life. Required Calculate the depreciation expense for each of the five years, assuming the use of straight-line depreciation. Calculate the depreciation expense for each of the five years, assuming the use of double-declining-balance depreciation. Assume that Becker Office Service sold the computer system at the end of the fourth year for $20,000. Compute the amount of gain or loss using each depreciation method.
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.
Becker Office Service purchased a new computer system on January 1, Year 1, for $37,700. It is expected to have a five-year useful life and a $4,000 salvage value. Becker Office Service expects to use the computer system more extensively in the early years of its life.
Required
- Calculate the
depreciation expense for each of the five years, assuming the use of straight-line depreciation. - Calculate the depreciation expense for each of the five years, assuming the use of double-declining-balance depreciation.
- Assume that Becker Office Service sold the computer system at the end of the fourth year for $20,000. Compute the amount of gain or loss using each depreciation method.
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