On January 1, 20X1, Bixby Inc. purchased equipment costing $75,000. The equipment is estimated to have a residual value of $6,000 and a four-year useful life. Part A: In the following chart, compare how much depreciation expense should be recorded each year of the asset’s life and over all four years if the company uses the straight-line versus the double-declining balance depreciation (DDB) method. Part B: Prepare the entry on 12/31/X2 to record depreciation expense for 20X2, assuming the straight-line depreciation method is used. Year Straight-Line Method DBB Method Year 1 of asset's life Year 2 of asset's life Year 3 of asset's life Year 4 of asset's life Total
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.
On January 1, 20X1, Bixby Inc. purchased equipment costing $75,000. The equipment is estimated to have a residual value of $6,000 and a four-year useful life.
Part A: In the following chart, compare how much
Part B: Prepare the entry on 12/31/X2 to record depreciation expense for 20X2, assuming the straight-line depreciation method is used.
| Year | Straight-Line Method | DBB Method |
| Year 1 of asset's life | ||
| Year 2 of asset's life | ||
| Year 3 of asset's life | ||
| Year 4 of asset's life | ||
| Total |
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