Question

A company purchased a computer system on January 1. Its cost was $55,000 and it had an estimated salvage value of $10,000. It was expected to have a useful life of 5 years.

Required:

a. To the nearest dollar, what’s the depreciation for year 1 using straight-line method? Please prepare the journal entry to record the depreciation.

b. To the nearest dollar, what’s the depreciation for year 1 using double-declining method?

c. Assume the computer system is estimated to be used for 1,500 hours in the first year, 1,200 hours the second, 1,000 the third, 800 the fourth, and 500 the fifth (for a total of 5,000 hours). To the nearest dollar, what’s the depreciation for year 1 using units of production method?

Answer 1

a.

Depreciation under Straight-line method = (Cost - Salvage value) / Estimated useful life

= ($55,000 - $10,000) / 5

= $9,000

JOURNAL ENTRY

Depreciation expense	$9,000
Accumulated depreciation		$9,000

b.

Depreciation under Double-declining method = (Cost - Accumulated depreciation) / Useful life * 2

= ($55,000 - $0) / 5 * 2

= $22,000

c.

Depreciation under units of production method = (Cost - Salvage value) * Hours used / Total estimated hours

Depreciation for year 1 = ($55,000 - $10,000) * 1,500 / 5,000

= $13,500