Sandblasting equipment acquired at a cost of $105,000 has an estimated residual value of $6,000 and an estimated useful life of 10 years. It was placed in service on October 1 of the current fiscal year, which ends on December 31, 20Y5.
a. Determine the depreciation for 20Y5 and for 20Y6 by the straight-line method. Round your answer to the nearest cent if rounding is required.
b. Determine the depreciation for 20Y5 and for 20Y6 by the double-declining-balance method. Round your answer to the nearest cent if rounding is required.
(a)Depreciation by Straight-line method
Straight-line Depreciation = (Cost of the assets – Salvage Value) / Useful Life
20Y5 Depreciation = [ ($1,05,000 - $6,000) / 10 Years ] x 3/12** = $2,475
20Y6 Depreciation = [ ($2,70,000 - $9,000) / 3 ] = $9,900
**First Year Depreciation for 3 Months Only, Since the Asset was placed in service on October 1, So only 3 Months depreciation expense will be provided
(b)Depreciation by Double-declining-balance method
Double Declining Depreciation = 2 x Straight Line Depreciation Rate x Book Value Beginning
Straight Line Depreciation Rate = 1 / Useful life = 1/10 = 0.10
20Y5 Depreciation = [ $1,05,000 x 2 x 0.10 ] x 3/12 = $5,250
20Y6 Depreciation = [ ($1,05,000 - $5,250) x 2 x 0.10 ] = $19,950
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