Question

A pressurized spray painter was purchased on April 1 of the fiscal year for $3,900. It has a useful life of 4 years and a residual value of $300. a. Determine depreciation expense for the first two years, assuming a fiscal year end of December 31 and using the straight-line method. Year 1 $ Year 2 $ b. Determine depreciation expense for the first two years, assuming a fiscal year end of December 31 and using the double-declining-balance method. Round your answers to two decimal places. Year 1 $ Year 2 $

Answer 1

Explanation:

The computation of the depreciation expense for the first year and the second year is shown below:

a) Straight-line method:

= (Original cost - residual value) ÷ (useful life)

= ($3,900 - $300) ÷ (4 years)

= ($3,600) ÷ (4 years)  

= $900

In this method, the depreciation is same for all the remaining useful life

So, in year 2 the depreciation expense is also $900

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= One ÷ useful life

= 1 ÷ 4

= 25%

Now the rate is double So, 50%

In year 1, the original cost is $3,900, so the depreciation is $1,950 after applying the 50% depreciation rate

And, in year 2, the $1,950 × 50% = $975