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lianna [129]
3 years ago
12

On January 2, 2021, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estima

ted life of eight years and an estimated residual value of $55,000. The expenditures made to acquire the asset were as follows:
Purchase price $236,500
Freight charges 8,000
Installation charges 11,500

Jackson's policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life.

Required:
Calculate depreciation for each year of the asset's eight-year life.
Business
1 answer:
jenyasd209 [6]3 years ago
8 0

Answer:

2021

Depreciation expense  = $64,000

2022

Depreciation expense  = $48,000

2023

Depreciation expense = $52,000

2024

Depreciation expense  = $51,000

2025

Depreciation expense  = $10,250

2026

Depreciation expense = $10,250

2027

Depreciation expense = $10,250

2028

Depreciation expense = $10,250

Explanation:

Depreciation Charge using the double-declining-balance (DDB) method is determined as follows :

Depreciation Charge = 2 x SLDP x BVSLDP

where,

SLDP = 100 ÷ Number of useful life

          = 100 ÷ 8

           = 12.5 %

and

BVSLDP = cost (in first year) and Book Value thereafter.

therefore,

2021

Depreciation expense = 2 x 12.5 % x $256,000 = $64,000

2022

Depreciation expense = 2 x 12.5 % x ($256,000 - $64,000) = $48,000

2023

Depreciation expense = 2 x 12.5 % x ($256,000 - $48,000) = $52,000

2024

Depreciation expense = 2 x 12.5 % x ($256,000 - $52,000) = $51,000

<u><em>Now from 2024 we have to switch to straight line method</em></u>

With Straight Line Method, we charge a fixed amount of depreciation using the formula :

Depreciation expense = (Cost - Residual Value) ÷ Remaining Useful life

But since we have provided for depreciation expenses before, we have to reduce the cost by $215,000 (accumulated depreciation to date). Also we reduce the remaining useful life by the years expired to 4 years.

2025

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

2026

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

2027

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

2028

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

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