Question

At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $270,000. It is expected to have a five-year life and a $40,000 salvage value. Required a. Compute the depreciation for each of the five years, assuming that the company uses (1) Straight-line depreciation. (2) Double-declining-balance depreciation.

Answer 1

Answer:

Depreciation Straight Line Expense= 230,000/5= $ 46,000

Explanation:

Depreciation Straight Line Method= Cost - Salvage Value/ Useful Life

Depreciation Straight Line Method= $270,000- $40,000/5

Depreciation Straight Line Method= 230,000/5= $ 46,000

As it is straight line depreciation each year the depreciation expense will be the same . It will not change and hence will be $ 46,000

Straight Line Rate= 100%/ useful Life= 100%/5 = 20%

Double Declining Method = 2 * Straight Line Rate

Double Declining Method = 2 * Straight Line Rate= 2*20%= 40%

Year    Book Value   Dep Rate   Dep Expense   Accu. Dep.   Book Value

1            $ 270,000        40%      $ 108,000     108,000          162,000

2            $ 162000          40%      64,800         172,800            97,200

3              97,200             40%     38,880            211,680          58,320

4              58,320           40%     23328               235,008         34,992

5               32,992         40%       13997              249,005         20,995.2