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2. Red Skys, Inc. purchased equipment at the beginning of 2016 for $140,000. The company decided...

2. Red Skys, Inc. purchased equipment at the beginning of 2016 for $140,000. The company decided to depreciate the equipment over a 10-year period using the double-declining-balance method. The company estimated the equipment's salvage value at $12,000. Show how the costs should be presented on Red Sky's financial statements at December 31, 2017. Label the statements properly.

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Answer #1

Double declining depreciation rate=2/useful life

                  = 2 / 10.

                  = .20 or 20%

Depreciation for 2016 = 140000*.20 = 28000

Book value at end of 2016 = 140000-28000 = 112000

Depreciation for 2017 = 112000 *.20 = 22400

Book value at end of 2017 = 112000-22400 = 89600

Income statement (Partial)

for the period ended 2017
Operating expense
Depreciation expense (22400)

Balance sheet

as on 2017
Asset
property plant and equipment
Equipment 140000
less:Accumulated depreciation [28000+22400] (50400) 89600
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