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Chapter 18, Problem 3CE
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### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

#### Solutions

Chapter
Section
BuyFindarrow_forward

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

# A machine costing $350,000 has a salvage value of$15,000 and an estimated life of three years. Prepare depreciation schedules reporting the depreciation expense, accumulated depreciation, and book value of the machine for each year under the double-declining-balance and sum-of-the-years’-digits methods. For the double-declining-balance method, round the depreciation rate to two decimal places.

To determine

Prepare depreciation expense schedules under double-declining-balance method and sum-of-years’- digits method.

Explanation

Double-declining-balance (DDB) 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.

Formula for double-declining-balance depreciation method:

DepreciationÂ expense}=â€‰â€‰â€‰â€‰â€‰â€‰(BookÂ valueÂ atÂ theÂ beginningÂ ofÂ theÂ periodÂ )Â Â â€‰Ã—Â Â Â Â DepreciationÂ rate=Â (Costâ€“AccumulatedÂ depreciationâ€‰)Ã—2UsefulÂ life

Prepare depreciation schedule under double-declining-balance method.

 Depreciation Schedule Double-Declining-Balance Method Year Beginning Book Value Rate Annual Depreciation Expense Accumulated Depreciation End of the Year Book Value End of the Year (1) (2) (3) (4) (5) [(1)Ã—(2)] [(1)â€“(4)] 1 $350,000 2/3$234,500 $234,500$115,500 2 115,500 2/3 77,385 311,885 38,115 3 38,115 2/3 23,115 335,000 15,000

Table (1)

Working Notes:

Formula for accumulated depreciation:

AccumulatedÂ depreciationÂ =Â {DepreciationÂ expenseÂ inÂ theÂ previousÂ years+DepreciationÂ inÂ currentÂ year}

Compute depreciation expense for Year 3.

DepreciationÂ inÂ YearÂ 3=(AssetÂ costâ€“AccumulatedÂ depreciationÂ inÂ YearÂ 2â€“ResidualÂ value)=$350,000â€“$311,885â€“$15,000=$23,115

Sum-of-the-yearsâ€™-digits method: The depreciation method which allocates the depreciable cost of the long-term asset annually based on the decreasing fraction or rate

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