Deluxe Ezra Company purchases equipment on January 1, Year 1, at a cost of $469,000. The asset is expected to have a service life of 12 years and a salvage value of $40,000. Instructions a. Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method. b. Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years’-digits method. c. Compute the amount of depreciation for each of Years 1 through 3 using the double-declining- balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Deluxe Ezra Company purchases equipment on January 1, Year 1, at a cost of $469,000. The asset is expected to have a service life of 12 years and a salvage value of $40,000.
Instructions
a. Compute the amount of
b. Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years’-digits method.
c. Compute the amount of depreciation for each of Years 1 through 3 using the double-declining- balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.)
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