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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Depreciation Methods Sorter Company purchased equipment for $200,000 on January 2, 2019. The equipment has an estimated service life of 8 years and an estimated residual value of $20,000.

Required:

Compute the depreciation expense for 2019 under each of the following methods:

  1. 1. straight-line
  2. 2. sum-of-the-years’-digits
  3. 3. double-declining-balance
  4. 4. Next Level What effect does the depreciation of the equipment have on the analysis of rate of return?

1.

To determine

Ascertain the depreciation expenses of Company S for 2019 under straight line method.

Explanation

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.

Ascertain the depreciation expenses of Company S for 2019 under straight line method as follows:

Depreciation expenses=Cost of equipment

2.

To determine

Ascertain the depreciation expenses of Company S for 2019 under sum of the years-digits method.

3.

To determine

Ascertain the depreciation expenses of Company S for 2019 under double-declining-balance method.

4.

To determine

State the effect that the depreciation of the equipment would have on the analysis of rate of return.

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