Question

Practice Exercise 11-1 Pharoah Company purchases equipment on January 1, Year 1, at a cost of $267,000. The asset is expected to have a service life of 6 years and a salvage value of $20,000. Compute the amount of depreciation for each of Years 1 and 2 using the straight-line depreciation method. Depreciation for Year1 Depreciation for Year 2 s Compute the amount of depreciation for each of Years 1 and 2 using the sum-of-the-years'-digits method Depreciation for Year 1 Depreciation for Year 2 Compute the amount of depreciation for each of Years 1 and 2 using the double-declining-balance method. (Round answers to O decimal places, e.g. 45,892.) Depreciation for Year 1 Depreciation for Year 2 s

Answer 1

Answers

• All working forms part of the answer
• Straight Line Method

A	Cost	$ 2,67,000.00
B	Residual Value	$      20,000.00
C=A - B	Depreciable base	$ 2,47,000.00
D	Life [in years]	6
E=C/D	Annual SLM depreciation	$      41,166.67

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$     2,67,000.00	$     41,166.67	$          2,25,833.33	$             41,166.67
2	$     2,25,833.33	$     41,166.67	$          1,84,666.67	$             82,333.33

• Sum of Digit Method

A	Cost	$ 2,67,000.00
B	Residual Value	$      20,000.00
C=A – B	Depreciable base	$ 2,47,000.00
1+2+3+4+5+6	Sum of digits	21

Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$     2,47,000.00	[247000 x 6/21]	$             70,571.43 or $70,571	$             70,571.43	$ 1,96,428.57
2	$     2,47,000.00	[247000 x 5/21]	$             58,809.52 or $58,810	$          1,29,380.95	$ 1,37,619.05

• Double Declining Balance Method

A	Cost	$ 2,67,000.00
B	Residual Value	$      20,000.00
C=A - B	Depreciable base	$ 2,47,000.00
D	Life [in years]	6
E=C/D	Annual SLM depreciation	$      41,166.67
F=E/C	SLM Rate	16.67%
G=F x 2	DDB Rate	33.33%

Year	Beginning Book Value	Depreciation rate	Depreciation expense
1	$     2,67,000.00	33.33%	$89,000
2	$     1,78,000.00	33.33%	$59,333