Chapter 6, Problem 6.3ME

Mini-Exercise 6.3

LO 3

Depreciation calculation methods Gandolfi Construction Co. purchased a used CAT 336DL earth mover at a cost of $500,000 in January 2016. The company’s estimated useful life of this heavy equipment is 10 years, and the estimated salvage value is $100,000.

Required:

1. Using straight-line depreciation, calculate the depreciation expense to be recognized for 2016, the first year of the equipment’s life, and calculate the equipment’s net book value at December 31, 2018, after the third year of the equipment’s life.
2. Using declining-balance depreciation at twice the straight-line rate, calculate the depreciation expense to be recognized for 2018, the third year of the equipment’s life.