Question

# Computing Straight-Line and Double-Declining-Balance Depreciation On January 2, 2016, Fischer Company purchases a machine that manufactures...

Computing Straight-Line and Double-Declining-Balance Depreciation
On January 2, 2016, Fischer Company purchases a machine that manufactures a part for one of its key products. The machine cost \$264,600 and is estimated to have a useful life of six years, with an expected salvage value of \$22,500.

Compute depreciation expense for 2016 and 2017 for the following depreciation methods.
a. Straight-line.
b. Double-declining balance.

2016 2017

 2016 2017 Straight Line \$40,350 \$40,350 Double Declining \$88,200 \$58,800

(a)-Straight Line Depreciation Method

Straight line Depreciation = [Cost of the asset – Salvage Value] / Useful Life

= [\$264,600 - \$22,500] / 6 Years

= \$242,100 / 6 Years

= \$40,350 per year

(b)-Double Declining Depreciation Method

Depreciation under Double Declining Method is calculated by using the following formula

Depreciation Expense = Book Value Beginning x Depreciation Rate

Depreciation Rate = 2 x (1 / Useful Life]

= 2 x (1/6)

= 0.3333 or 33.33%

Depreciation Expenses for 2016 = \$88,200 [\$364,600 x 0.3333]

Depreciation Expenses for 2017 = \$58,800 [(\$264,600 - \$88,200) x 0.3333]