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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Assume the same information as in RE11-3, except that Albany Corporation purchased the asset on April 1, Year 1. Calculate the depreciation for Year 1 and Year 2 using the double-declining-balance method. Round to the nearest dollar.

To determine

Compute the depreciation expenses for Company A under double declining method for year 1 and year 2.

Explanation

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life, is referred to as double-declining-balance method

Calculate the depreciation expense of Company A for year 1 and year 2 under double-declining balance method as follows:

Year 1:

Depreciation expense=[Aquisition cost of equipment×Depreciation Rate (1)×Depreciation expense incurredMonths in a year]=$75,000×25100×9 (AprilDecember)12=$18

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