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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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Kam Company purchased a machine on January 2, 2019, for $20,000. The machine had an expected life of 8 years and a residual value of $300. The double-declining-balance method of depreciation is used.

Required:

  1. 1. Compute the depreciation expense for each year of the asset’s life and book value at the end of each year.
  2. 2. Assuming that the company has a policy of always changing to the straight-line method at the midpoint of the asset’s life, compute the depreciation expense for each year of the asset’s life.
  3. 3. Assuming that the company always changes to the straight-line method at the beginning of the year when the annual straight-line amount exceeds the double-declining-balance amount, compute the depreciation expense for each year of the asset’s life.

1.

To determine

Calculate the depreciation expense and the book value of the machinery at the end of  each year under double declining method.

Explanation

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 and the book value of the machinery at the end of the year for each year under double declining method as follows:

Year(a)(b)(c)(d)
Beginning Book Value ($)Depreciation rate (1)Depreciation expenses ($)Book Value ($)
(a×25%)(ac)
2019$20,00025%$5,000$15,000
2020

($20,000$5,000)15,000

25%3,75011,250
2021($20,000$5,000$3,750) 11,25025%2,8138,437
2022($20,000$5,000$3,750$2,813)8,43725%2,1096,328
2023($20,000$5,000$3,750$2,813

2.

To determine

Ascertain the amount of depreciation expense of Company K for each year; assume that the company has switched to straight line method at the midpoint of the assets life.

3.

To determine

Ascertain the depreciation expenses of Company K for each of the asset life under the given situation.

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