Question

Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Using double-declining-balance depreciation, what the amount of depreciation expense and the amount of accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements?

Answer 1

Answer:

Depreciation expense - year 3 = $5184

Accumulated depreciation - Year 3 = 23040 + 5184 = $28224

Explanation:

The Financial reporting standards state that the cost of a fixed asset should include the purchase cost and all the costs necessary to bring the asset to the place and in the condition necessary for its use as intended by the management. Thus, the transportation cost will be capitalized as in FOB Shipping Point, the buyer pays for the transportation.

Cost of office equipment = 34000 + 2000 = $36000

Th double declining balance method is an accelerated method to charge depreciation in which higher depreciation is charged in the initial years and lower in the later years.

The formula for depreciation expense under this method is,

Depreciation expense = 2 * [(Asset cost - Accumulated depreciation)/Estimated useful life of the asset]

Depreciation expense - year 1= 2 * [(36000 - 0) / 5

Depreciation expense - year 1 = $14400

Depreciation expense - year 2 = 2 * [(36000 - 14400) / 5]

Depreciation expense - year 2 = $8640

Accumulated depreciation - year 2 = 14400 + 8640 = 23040

Depreciation expense - year 3 = 2 * [(36000 - 23040) / 5]

Depreciation expense - year 3 = $5184

Accumulated depreciation - Year 3 = 23040 + 5184 = $28224