Question

Question 1.) On July 1, 2020, Soprano Company purchased 10 computers with an invoice price of $50,000. Other costs incurred were sales tax $2,100, Freight $300, installation of $2,300, testing of $300, and prepaid insurance to cover the computers; $3,600. The computers are estimated to have a 5-year life and $5,000 salvage value.

Instructions:

1. Find the cost of new computers.       

2. What is depreciation for 2020 and 2021 if the company uses the double-declining balance method?:
     
   2020 Depreciation?:

   2021 Depreciation?:

Question 2.) A company purchased factory equipment for $700,000 on November 1, 2020. It is estimated that the equipment will have a $70,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be (Round to whole dollars if necessary)

Answer 1

Question 1 :

All the cost which requires to put the asset in use should be capitalized.

Computers =

Invoice price = 50,000

Sales tax = 2100

Freight = 300

Installation = 2300

Testing = 300

Total cost of machine = 55,000.

(Insurance expense should not be capitalized)

Estimated life = 5 years

Double declinind method rate = 2 ( Straight line basis rate)

= 2 (1/ 5 years) = 2 (20%) = 40%.

For accounting purpose, Depreciation for July to December recorded in year 2020.

Depreciation for 2020 = 55,000 × 40% × 6/12 = 11,000.

Balance after 2020 = 55000 - 11000 = 44,000.

Depreciation for 2021 = 44,000 ×40% = 17,600.

Question 2 :

Same as above rate of depression of double declining method is 40%.

Depreciation 2020 = 700,000 × 40% × 2/12 = 46667

Balance at year end 2020 = 700,000 - 46667 = 653,333.

Depreciation for 2021 = 653,333 × 40% = 261,333.