Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 11: Q11-7E (page 586)

(Different Methods of Depreciation) Jackel Industries presents you with the following information.

Description

Date Purchased

Cost

Salvage Value

Life in years

Depreciation Method

Accumulated depreciation to 12/31/18

Depreciation for 2019

Machine A

2/12/17

\(142,500

\)16,000

10

(a)

$33,350

(b)

Machine B

8/15/16

(c)

21,000

5

SL

29,000

(d)

Machine C

7/21/15

75,400

23,500

8

DDB

(e)

(f)

Machine D

10/12/(g)

219,000

69,000

5

SYD

70,000

(h)

Instructions

Complete the table for the year ended December 31, 2019. The company depreciates all assets using the half-year convention.

Short Answer

Expert verified

Answer

Depreciation for 2019 is as follows:

  1. $19,550
  2. $11,600
  3. $4,333
  4. $35,000

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Depreciation

In financial accounting, depreciation could be a strategy for spreading out the cost of tangible resources over their functional lives. Essentially, it is the disintegration of the value of an asset, which happens over time due to continuous use and abrasion of the asset.

02

Computing the table for the year ended December 31, 2019

Description

Date Purchased

Cost

Salvage Value

Life in years

Depreciation Method

Accumulated depreciation to 12/31/18

Depreciation for 2019

Machine A

2/12/17

$142,500

$16,000

10

  1. SYD

$33,350

(b) $19,550

Machine B

8/15/16

(c)

21,000

5

SL

29,000

(d) 11,600

Machine C

7/21/15

75,400

23,500

8

DDB

(e) 47,567

(f)4,333

Machine D

10/12/17(g)

219,000

69,000

5

SYD

70,000

(h) 35,000

Working notes:

Machine A—Testing the methods

Straight-Line Method for 2017

$ 6,325

Straight-Line Method for 2018

$12,650

Total Straight Line

$18,975

Depreciation=Cost of asset−Salvage valueUseful life×12=$142,500−$16,00010×12=$6,325

Machine A—Testing the methods

Double-Declining Balance for 2017

$14,250

Double-Declining Balance for 2018

$25,650

Total Double Declining Balance

$39,900

Computing depreciation for 2017

Depreciation=Cost×Declining rate×Number in monthMonth in a year=$142,500×0.2×0.5=$14,250

Calculating depreciation for 2018

Depreciation=Cost−Depreciaton of 2017×Declining rate=$142,500−$14,250×0.2=$25,650

Machine A—Testing the methods

Sum-of-the-years-digits for 2017

$11,500

Sum-of-the-years-digits for 2018

$21,850

Total Sum-of-the-years-digits

$33,350

Calculating depreciation for 2017

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$142,500−$16,000×1055×0.5=$126,500×1055×0.5=$11,500

Calculating depreciation for 2018 for life in 10 year

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$142,500−$16,000×1055×12=$126,500×1055×12=$11,500

Calculating depreciation for 2018 for life in 9 year

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$142,500−$16,000×955×0.5=$126,500×955×0.5=$10,350

So total depreciation for 2018 is $21,850 ($14,833+$21,191)

Machine A—Testing the methods

The method used must be SYD

Using SYD, 2019 Depreciation is

$19,550

Calculation of depreciation for life in 9 year

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$142,500−$16,000×955×12=$126,500×955×12=$10,350

Calculation of depreciation for life in 8 year

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$142,500−$16,000×855×0.5=$126,500×855×0.5=$9,200

So total depreciation is $19,500 ($10,350+$9,200)

Machine B-Computation of the cost

The asset has been depreciated for 21/2years using the straight-line method.

Annual depreciation is then equal to $29,000 divided by 2.5 or $11,600. 11,600 times 5 plus the salvage value is equal to the cost. Cost is $79,000

Cost=Annual depreciation×Life in years+Salvage value=$11,600×5+$21,000=$79,000

Using SL, 2017 Depreciation is $11,600

Machine C—using the double-declining balance method of depreciation

Year

Depreciation expense

Calculation

2015’s depreciation is

$ 9,425

($75400 x .25 x 5)

2016’s depreciation is

$16,494

($75400 - $9,425) x .25

2017’s depreciation is

$12,370

($75400 - $25,919) x .25

2018’s depreciation is

$ 9,278

($75400 - $38,289) x .25

$47,567

So,Using DDB, 2019 Depreciation is $4,333 ($75,400 – $47,567 – $23,500)

Machine D—Computation of Year Purchased

First Half Year using SYD

$25,000

Second Year using SYD

$45,000

$70,000

Calculating depreciation for the first half-year using SYD

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$219,000−$69,000×515×.5=$150,000×515×.5=$25,000

Calculating depreciation for Second Year using SYD for 5 years in life

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$219,000−$69,000×515×.5=$150,000×515×.5=$25,000

Calculating depreciation for Second Year using SYD for 4 years in life

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$219,000−$69,000×415×.5=$150,000×415×.5=$20,000

So, the total depreciation expense is $70,000

Thus the asset must have been purchased on October 12, 2017

Using SYD, 2019 Depreciation is $35,000

Calculating depreciation for 4 years in the life

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$219,000−$69,000×415×.5=$150,000×415×.5=$20,000

Calculating depreciation for 3 years in the life

Depreciation=Cost −Salvage value×Number of yearSum of years digit×Number of​monthNumber of month in a year=$219,000−$69,000×315×.5=$150,000×315×.5=$15,000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Depletion Computations—Timber) Stanislaw Timber Company owns 9,000 acres of timberland purchased in 2006 at a cost of \(1,400 per acre. At the time of purchase, the land without the timber was valued at \)400 per acre. In 2007, Stanislaw built fire lanes and roads, with a life of 30 years, at a cost of \(84,000. Every year, Stanislaw sprays to prevent disease at a cost of \)3,000 per year and spends \(7,000 to maintain the fire lanes and roads. During 2008, Stanislaw selectively logged and sold 700,000 board feet of timber of the estimated 3,500,000 board feet. In 2009, Stanislaw planted new seedlings to replace the trees cut at a cost of \)100,000.

Instructions

  1. Determine the depreciation expense and the cost of timber sold related to depletion for 2008.
  2. Stanislaw has not logged since 2008. If Stanislaw logged and sold 900,000 board feet of timber in 2019, when the timber cruise (appraiser) estimated 5,000,000 board feet, determine the cost of timber sold related to depletion for 2019.

(Error Analysis and Depreciation, SL and SYD) Mike Devereaux Company shows the following entries in its Equipment account for 2018. All amounts are based on historical cost.

Equipment
2018
2018
Jan 1Balance 134,750June 30Cost of 23,000 equipment sold (purchased prior to 2018)
Aug. 10Purchases 32,000

12Freight on Equipment purchased 700

25Installation costs 2,700

Nov. 10Repairs 500

Instructions

  1. Prepare any correcting entries necessary.
  2. Assuming that depreciation is to be charged for a full year on the ending balance in the asset account, compute the proper depreciation charge for 2018 under each of the methods listed below. Assume an estimated life of 10 years, with no salvage value. The machinery included in the January 1, 2018, balance was purchased in 2016.

    a. Straight-line
    b. Sum-of-the-years’-digits.

Toro Co. has equipment with a carrying amount of \(700,000. The expected future net cash flows from the equipment are \)705,000, and its fair value is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?

Why might a company choose not to use revaluation accounting?

McDonald’s Corporation

McDonald’s is the largest and best-known global food-service retailer, with more than 32,000 restaurants in 118 countries. On any day, McDonald’s serves approximately 1 percent of the world’s population. The following is information related to McDonald’s property and equipment.

McDonald’s Corporation

Summary of Significant Accounting Policies Section

Property and Equipment. Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over the following estimated useful lives: buildings—up to 40years; leasehold improvements—the lesser of useful lives of assets or lease terms, which generally include option periods; and equipment—three to 12 years.

[In the notes to the financial statements:]

Property and Equipment

Net property and equipment consisted of:

December 31

(In millions) 2014 2013

Land \( 5,788.4 \)5,849.3

Buildings and improvements on owned land 14,322.4 14,715.6

Buildings and improvements on leased land 13,284.0 13,825.2

Equipment, signs and seating 5,113.8 5,376.8

Other 617.5 588.7

39,126.1 40,355.6

Accumulated depreciation and amortization (14,568.6) (14,608.3)

Net property and equipment \(24,557.5 \)25,747.3

Depreciation and amortization expense for property and equipment was

(in millions): 2014—\(1,539.3; 2013—\)1,498.8; 2012—\(1,402.2.

[In its 6-year summary, McDonald’s provides the following information.]

(in millions) 2014 2012 2013

Cash provided by operations \)6,370 \(7,121 \)6,966

Capital expenditures 2,583 2,825 3,049

Instructions

  1. What method of depreciation does McDonald’s use?
  2. Does depreciation and amortization expense cause cash flow from operations to increase? Explain.
  3. What does the schedule of cash flow measures indicate?
See all solutions

Recommended explanations on Business Studies Textbooks

Public Relations Business Studies

Read Explanation

Project Planning & Management

Read Explanation

Family Business

Read Explanation

Influences On Business

Read Explanation

Actuarial Science in Business

Read Explanation

International Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free