Question

Exercise 1 from our first class period discussing Chapter 11 noted the following information:

On January 7, 2017, Barker Company purchased equipment for $350,000. Estimated residual value at the end of an estimated six-year service life is $50,000.

Depreciation in that exercise was calculated for two years using the following methods:

1. Straight-line, with a net balance of $250,000 after 2018

2. Sum-of-the-years’-digits, with a net balance of $192,857 after 2018

3. Double-declining balance, with a net balance of $155,555 after 2018

Note: Disregard the other method – units of production – calculated in that exercise.

After two years of use, Barker determines that the equipment is usable for six more years (a total of eight years) with a $40,000 salvage value.

Required: Rounding answers to the nearest whole dollar, calculate the revised depreciation for 2019 using:

1. Straight-line:

Revised depreciation = (Book value – new salvage value) / Remaining estimated useful life (EUL)

2. Sum-of-the-years’-digits (SYD):

Revised depreciation = (Book value – new salvage value) x (# of years of EUL remaining from

beginning of year / SYD)

(3)   Double-declining balance:

Revised depreciation = Book value x 2 / Remaining EUL

Answer 1

1. Straight-line: =

Revised depreciation = (Book value – new salvage value) / Remaining estimated useful life (EUL)

= (250,000 - 40,000 ) / 6

= $ 35,000

2. Sum-of-the-years’-digits (SYD):

Revised depreciation = (Book value – new salvage value) x (# of years of EUL remaining from beginning of year / SYD)

= ( 192,857 - 40,000) *6/ 21  

= $ 43, 673

3)   Double-declining balance:

Revised depreciation = Book value x 2 / Remaining EUL

= (155,555 * 2) / 6

= $ 51, 852