Question

# Question 1.) On July 1, 2020, Soprano Company purchased 10 computers with an invoice price of...

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)

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.

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