On July 1, 2014, Sparks Company purchased for $2,160,000 snow-making equipment having an estimated useful life of 5 years with an estimated residual value of $90,000. Depreciation is taken for the portion of the year the asset is used. Instructions (a) Complete the form below by determining the depreciation expense and year-end book values for 2014 and 2015 using the sum-of-the-years'-digits method. double-declining balance method. Sum-of-the-Years'-Digits Method 2015 1. 2. 2014 Equipment Less: Accumulated Depreciation $2,160,000 $2,160,000 Year-End Book Value Depreciation Expense for the Year Double-Declining Balance Method Equipment Less: Accumulated Depreciation $2,160,000 $2,160,000 Year-End Book Value Depreciation Expense for the Year (b) Assume the company had used straight-line depreciation during 2014 and 2015. During 2016, the company determined that the equipment would be useful to the company for only one more year beyond 2016. Residual value is estimated at $120,000. Compute the amount of depreciation expense for the 2016 income statement.
On July 1, 2014, Sparks Company purchased for $2,160,000 snow-making equipment having an estimated useful life of 5 years with an estimated residual value of $90,000. Depreciation is taken for the portion of the year the asset is used. Instructions (a) Complete the form below by determining the depreciation expense and year-end book values for 2014 and 2015 using the sum-of-the-years'-digits method. double-declining balance method. Sum-of-the-Years'-Digits Method 2015 1. 2. 2014 Equipment Less: Accumulated Depreciation $2,160,000 $2,160,000 Year-End Book Value Depreciation Expense for the Year Double-Declining Balance Method Equipment Less: Accumulated Depreciation $2,160,000 $2,160,000 Year-End Book Value Depreciation Expense for the Year (b) Assume the company had used straight-line depreciation during 2014 and 2015. During 2016, the company determined that the equipment would be useful to the company for only one more year beyond 2016. Residual value is estimated at $120,000. Compute the amount of depreciation expense for the 2016 income statement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.
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