Question

Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the double-declining-balance method. (b) Compute 2017 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2017.

Short answer

1. Depreciation expense = $20,000
2. Depreciation expense = $5,000

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of the Depreciation

Depreciation expense is an expense that is incurred on a tangible asset due to obsolescence or the passage of time on that asset. A company has a different option for determining depreciation but straight-line depreciation is the simplest one.

(a) Computing depreciation using the double-declining balance method.

Calculating double-declining rate

$\begin{array}{c}\text{Double\hspace{0.17em}declining\hspace{0.17em}rate}=\frac{1}{\text{Useful\hspace{0.17em}life}}\times 2\\ =\frac{1}{8}\times 2\\ =25\mathrm{\%}\end{array}$

Calculating depreciation expense

$$\begin{gathered} \text{Depreciation\hspace{0.17em}expense}=\text{Cost\hspace{0.17em}of\hspace{0.17em}asset}\times \text{Double\hspace{0.17em}declining\hspace{0.17em}rate} \\ =\mathrm{\$}80,000\times 25\mathrm{\%} \\ =\mathrm{\$}20,000 \end{gathered}$$

(b) Computing depreciation using the double-declining balance method.

Calculating depreciation expense

$$\begin{gathered} \text{Depreciation\hspace{0.17em}expense}=\text{Cost\hspace{0.17em}of\hspace{0.17em}asset}\times \text{Double\hspace{0.17em}declining\hspace{0.17em}rate}\times \frac{\text{Number\hspace{0.17em}in\hspace{0.17em}month}}{\text{Month\hspace{0.17em}in\hspace{0.17em}a\hspace{0.17em}year}} \\ =\mathrm{\$}80,000\times 25\mathrm{\%}\times \frac{3}{12} \\ =\mathrm{\$}5,000 \end{gathered}$$