Chapter 11, Problem 11.1P

(1)

To determine

Depreciation:

Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.

$\text{Depreciation cost = }\frac{\text{Cost of the asset-Salvage value}}{\text{Estimated useful life of the asset}}$

Straight-line method:

Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.

$\text{Depreciation expense = }\frac{\text{Cost of the asset-Salvage value}}{\text{Estimated useful life of the asset}}$

Double-declining balance method:

In this method of depreciation, the diminishing value of the asset is taken into consideration for determining the depreciation for the succeeding years.

To Determine: The depreciation expense of Company B for the year 2016 if it had used the double-declining-balance depreciation method in order to compare performance with Company A.

2.

To determine

To Prepare: The journal entry for the year 2016 to record depreciation for the year, if it had decided to switch the depreciation methods in 2016 from straight line to double-declining-balance method.