   Chapter 11, Problem 11E ### Intermediate Accounting: Reporting...

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

#### Solutions

Chapter
Section ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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# On May 10, 2019, Horan Company purchased equipment for $25,000. The equipment has an estimated service life of 5 years and zero residual value. Assume that the straight-line depreciation method is used.Required:Compute the depreciation expense for 2019 for each of the following four alternatives: 1. Horan computes depreciation expense to the nearest day. (Use 12 months of 30 days each and round the daily depreciation rate to 2 decimal places.) 2. Horan computes depreciation expense to the nearest month. Assets purchased in the first half of the month are considered owned for the whole month. 3. Horan computes depreciation expense to the nearest whole year. Assets purchased in the first half of the year are considered owned for the whole year. 4. Horan records one-half year’s depreciation expense on all assets purchased during the year. To determine Calculate the depreciation expense of Company H for the given alternatives. Explanation Depreciation: Depreciation is a method of reducing the capitalized cost of long-lived operating assets or plant assets for the period the asset is used. Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method. Alternative 1: Depreciation expense for 2019 = (Depreciation expense per day×Days owned during the year)=$13.89 per day (2)×230 days (May 10 to December 31)=$3,195 Working note (1): Calculate the days in the life of the asset. Days in the life of the asset = Serivce life of the asset ×Number of days in a year=5 years ×360 days=1,800 days Note: The number of days in a year is 360 days(12 months ×30 days). Working note (2): Calculate the depreciation expense per day. Depreciation expense per day=[Acquisition cost – Residual valueUseful life in days] =$25,000 $01,800 days (1)=$13.89 per day

Alternative 2:

Depreciation expense for 2019 = (Depreciation expense per month×Months owned during the year)=\$416

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