Intermediate Accounting
Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
Question
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Chapter 11, Problem 11.2E

(1)

To determine

Depreciation:

Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.

Depreciation cost = Cost of the asset-Salvage valueEstimated useful life of the asset

To calculate: The depreciation for 2018 and 2019 using straight line method.

(1)

Expert Solution
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Explanation of Solution

Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.

Calculate depreciation using straight line method

Straight line method:

Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.

Depreciation expense = (Cost of the asset-Salvage value)Estimated useful life of the asset

Depreciationexpense = ($115,000$5,000)10years=$110,00010=$11,000

Conclusion

Hence, depreciation for 2018 and 2019 is $11,000.

(2)

To determine

To calculate: The depreciation for 2018 and 2019 using Sum-of-the-years’-digits method.

(2)

Expert Solution
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Explanation of Solution

Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.

Sum-of- the-years’ digits (SYD) method:

Sum-of-the years’ digits method determines the depreciation expense by multiplying the depreciable base and declining fraction.

Depreciationexpense={Cost of the asset × (Number of years ofestimated life remaining at the beginning of the year)÷SYD SYD=n(n+1)2

Where n is estimated life time of the asset.

SYD=n(n+1)2=10(10+1)2=55

Calculate depreciation for 2018 and 2019 using Sum-of-the-years’-digits method.

For 2018:

Depreciationexpense=($15,000$5,000)×1055=$110,000×1055=$20,000

For 2019:

Depreciationexpense=($15,000$5,000)×955=$110,000×955=$18,000

Conclusion

Hence, a depreciation expense for 2018 is $20,000 and for 2019 is $18,000.

(3)

To determine

To calculate: The depreciation expenses for 2018 and 2019 using double declining balance method.

(3)

Expert Solution
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Explanation of Solution

Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.

Double declining balance (DDB) method:

In this method of depreciation, the depreciation is calculated by multiply beginning of year book value, not depreciable base, by an annual rate that is a multiple of the straight line rate.

Depreciation expense=(Beginingvalueoftheasset)×(Straightlinerateofdepreciation × 2)

Calculate depreciation expense for 2018 and 2019

For 2018:

Depreciation expense = $115,000×(110)×2=$23,000

For 2019:

Depreciation expense = ($115,000$23,000)×(110)×2=$92,000×(210)=$18,400

Conclusion

Hence, a depreciation expense for 2018 is $23,000 and for 2019 is $18,400.

(4)

To determine

To calculate: The depreciation expense for 2018 and 2019 using One hundred fifty percent declining balance.

(4)

Expert Solution
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Explanation of Solution

Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.

One hundred fifty percent declining balance:

In this method of depreciation, the depreciation is calculated by multiply beginning of year book value, not depreciable base, by an annual rate that is a 150% or 1.5 of the straight line rate.

Depreciation expense=(Beginingvalueoftheasset)×(Straightlinerateofdepreciation × 1.5)

Calculate depreciation for 2018 and 2019.

For 2018:

Depreciation expense = $115,000×(110)×1.5=$17,250

For 2019:

Depreciation expense = ($115,000$17,250)×(110)×1.5=$97,750×(110)×1.5=$14,663

Conclusion

Hence, a depreciation expense for 2018 is $17,250 and for 2019 is $14,663.

(5)

To determine

To calculate: The depreciation expense for 2018 and 2019 using Units of production method.

(5)

Expert Solution
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Explanation of Solution

Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000. The machine is expected to produce 220,000 units during its life. During 2018, units produced were 10,000 and during 2019, units produced were 25,000.

Units of production method:

The units’ of-production method is an activity-based method that calculates a depletion or depreciation or amortization rate per measure of activity and then multiplies this rate by actual activity to determine periodic cost allocation.

Depreciation expense = Cost of the asset - Residual valueExpectedproduction×(Numberofmeasuresproducedinthatperiod)

Calculate depreciation expense for 2018 and 2019:

For 2018:

Depreciation expense = $115,000  $5,000220,000 units×(10,000units)=$110,000220,000×10,000=12×10,000=$5,000

For 2019:

Depreciation expense = $115,000  $5,000220,000 units×(25,000units)=$110,000220,000×25,000=12×25,000=$12,500

Conclusion

Hence, a depreciation expense for 2018 is $5,000 and for 2019 is $12,500.

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Chapter 11 Solutions

Intermediate Accounting

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