Question

Rhino Inc. had following property, plant and equipment purchases during 2019: (1) On April 4, equipment costing $250,000 with a 5-year service life and an estimated $40,000 residual value was purchased. (2) On October 4, a machine costing $330,000 with a 5-year service life and an estimated $50,000 residual value was purchased. Assuming Ad Hock has a December 31 year end, prepare the necessary adjusting journal entries at December 31, 2019 to record depreciation under the following depreciation methods (using the nearest whole month method): (a) Straight-line (b) Double-declining-balance

Answer 1

a) Straight Line :
Depreciation Expense = (Asset Cost - Residual Value )/ Useful life of the Asset
1) On April 4 :
Depreciation Expense = (Asset Cost - Residual Value )/ Useful life of the Asset
Depreciation Expense = ($ 250,000 - $40,000 )/ 5 Years
Depreciation Expense = $ 42,000
Hence , Depreciation Expenses is charged from April 4 to December 31 ,2019 is 9 Months
So, Depreciation Expense for 9 Months = $ 42,000*9/12 Months = $ 31,500
2) On October 4:
Depreciation Expense = (Asset Cost - Residual Value )/ Useful life of the Asset
Depreciation Expense = ($ 330,000 - $50,000 )/ 5 Years
Depreciation Expense = $ 56,000
Hence , Depreciation Expenses is charged from October 4 to December 31 ,2019 is 3 Months
So, Depreciation Expense for 3 Months = $ 56,000*3/12 Months = $ 14,000

a) Straight Line :
No	Date	General Journal	Debit	Credit
1)	Dec 31,2019	Depreciation Expense	$ 31,500
		Accumulated Depreciation -Equipment		$ 31,500
		(To record depreciation expenses for 9 Months )
2)	Dec 31,2019	Depreciation Expense	$ 14,000
		Accumulated Depreciation -Machine		$ 14,000
		(To record depreciation expenses for 3 Months )

b) Double-Declining -Balance :
1) On April 4 :
Depreciation Expense = 2* Straight line Depreciation percent * Book Value at the Beginning of Asset
Straight Line Depreciation Percent =( 1/ Useful life )*100 %
Straight Line Depreciation Percent =( 1/ 5 Years )*100 %
Straight Line Depreciation Percent = 20 %
Depreciation Expense = 2* Straight line Depreciation percent * Book Value at the Beginning of Asset
Depreciation Expense = 2* 20% * $ 250,000
Depreciation Expense = $ 100,000
Hence , Depreciation Expenses is charged from April 4 to December 31 ,2019 is 9 Months
So, Depreciation Expense for 9 Months = $ 100,000*9/12 Months = $ 75,000
2) On October 4:
Depreciation Expense = 2* Straight line Depreciation percent * Book Value at the Beginning of Asset
Straight Line Depreciation Percent =( 1/ Useful life )*100 %
Straight Line Depreciation Percent =( 1/ 5 Years )*100 %
Straight Line Depreciation Percent = 20 %
Depreciation Expense = 2* Straight line Depreciation percent * Book Value at the Beginning of Asset
Depreciation Expense = 2* 20% * $ 330,000
Depreciation Expense = $ 132,000
Hence , Depreciation Expenses is charged from October 4 to December 31 ,2019 is 3 Months
So, Depreciation Expense for 3 Months = $ 132,000*3/12 Months = $ 33,000

b) Double-Declining -Balance :
No	Date	General Journal	Debit	Credit
1)	Dec 31,2019	Depreciation Expense	$ 75,000
		Accumulated Depreciation -Equipment		$ 75,000
		(To record depreciation expenses for 9 Months )
2)	Dec 31,2019	Depreciation Expense	$ 33,000
		Accumulated Depreciation -Machine		$ 33,000
		(To record depreciation expenses for 3 Months )