ACCT 1A Lecture Notes - Lecture 6: Ddb Worldwide, Book Value, Income Statement

7 views2 pages

rosebuffalo981

16 Jul 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

seilo

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

First, compute the straight-line depreciate rate per year. A 5-year asset has a sl depreciation rate of 1/5 or 20% Second, multiply the sl rate by 2 to compute the ddb rate. For a 5-year asset, the ddb rate is 40% (20% x2) Third, multiply the ddb rate by the period"s beginning asset carrying amount (cost less accumulated depreciation). Under the ddb method, ignore the residual value of the asset in computing depreciation, except during the last year. Ddb depreciation rate per year = (1/useful life, in years) x 2. Fourth, determine the final year"s depreciation amount that is, the amount needed to reduce the asset carrying amount to its residual value. The residual value should not be depreciated but should remain on the books until the asset is disposed of. For an asset that generates revenue evenly over time, the straight-line method best meets this criterion.

Related Questions

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $48,870. The equipment was expected to have a useful life of three years, or 4,320 operating hours, and a residual value of $1,350. The equipment was used for 800 hours during Year 1, 1,500 hours in Year 2, 1,300 hours in Year 3, and 720 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-output method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

b. Units-of-output method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

c. Double-declining-balance method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

Feedback

Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation.

Annual units-of-output depreciation allocates the cost of the asset equally over the units produced (hours).

The double-declining rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation.

Compare the total depreciation for all methods over the time period. Recall that straight-line depreciation allocates the depreciable cost of the asset equally over the period of use, while double-declining method is an accelerated method.

Learning Objective 2.

goldtermite491

25.Which of the following items does not affect the calculation of depreciation expense?

A.Economic benefits generated by the asset

B.Useful life of the asset

C.Residual value of the asset

D.Capitalized cost of the asset

26.Which of the following statements is correct when the straight-line method is used to compute depreciation?

A.The carrying value of an asset is a constant amount during the asset's useful life

B.Accumulated depreciation is a constant amount during the asset's estimated useful life

C.Depreciation Expense is a constant amount each year

D.The book value of an asset is an increasing amount during the asset's useful life

27.One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:

A.reduces book value below residual value.

B.does not consider the useful life of the asset in the calculation of depreciation.

C.cannot be used for tax purposes.

D.uses book value instead of depreciable cost in the calculation of depreciation.

28.Why don't all companies use the same depreciation method?

A.US income tax regulations require that a company use the same depreciation method for both financial reporting and income taxes.

B.Different depreciation methods might better reflect the pattern in which assets' economic benefits are used.

C.All companies do use the same depreciation method.

D.Only large companies are allowed to use some of the more complicated depreciation methods.

Ace Lawn Care Module 5 Mini PracticeProblem

In June, Jim made several purchases to accommodate his growingbusiness.

June2 Jim purchased a storage location for lawn care equipment, paid$45,000 for a building on 1 acre. The land is appraised at $8,000.The building has an estimated life of 10 years with a $5,000salvage value. Jim paid $2,000 down and financed the remainingpurchase price with a 5% 5 year note.

June4 Jim purchased a trailer to haul lawn care equipment for $2,300;estimated life is 5 years with no salvage value. Jim paid for thepurchase in cash.

June5 Jim purchased a gas powered trimmer for $1,200 and a commercialleaf-blower for $1,500. Jim estimates they will each have a twoyear life and no salvage value. Jim paid for both of these piecesof equipment on account.

These are in addition to the three assets Jim acquired inMay:

Date Item Cost Estimated Life Salvage Value

May 2 Truck $7,000 5 years $500

5 LawnMower $300 2 years $0

5 Aerator $500 2years $0

Depreciation was recorded in May for these assets using thestraight-line method however Jim is considering other depreciationmethods and has asked you to prepare a comparison of thestraight-line method with the double declining balance (200% DDB)method before he decides.

Instructions:

Using the chart of accounts provided below and the Exceltemplate provided with this assignment, record the transactions forthe new assets purchased in June, 2014. Start with Page7 for the journal entries. Explanations are optional.

Prepare a monthly schedule of depreciation for each of the sevenassets for 2014 using 1) straight-line and 2) 200% DDB. (Assumeassets purchased before the 15^th of the month will bedepreciated as if owned for the entire month). Remember that youare calculating monthly depreciation, not annual and adjust yourdepreciation rate. Carry your depreciation rate to four decimalsand round the depreciation expense to two decimals.

Jim has decided that equipment will be depreciated usingstraight-line and the building using 200% DDB. Prepare theadjusting journal entries for depreciation for the month of June,2014. Start with Page 8 for the adjusting journalentries. Explanations are optional.

Ace Lawn Care

Chart of Accounts

Classification	Account Number	Account Name
ASSETS	101	Cash
	110	Accounts Receivable
	112	Allowance for Doubtful Accounts
	115	Notes Receivable
	116	Interest Receivable
	120	Supplies
	130	Prepaid Insurance
	140	Inventory
	150	Equipment
	152	Land
	153	Building
	155	Accumulated Depreciation â Equipment
	156	Accumulated Depreciation - Building
LIABILITIES	201	Accounts Payable
	220	Notes Payable
	225	Interest Payable
OWNERâS EQUITY	301	Ownerâs Capital
	305	Ownerâs Drawings
	310	Income Summary
REVENUES	401	Lawn Service Revenue
	410	Sales Revenue
	415	Sales Returns and Allowances
	420	Interest Income
COST OF GOODS SOLD	501	Purchases
	505	Purchase Returns and Allowances
EXPENSES	620	Supplies Expense
	630	Fuel Expense
	640	Repair and Maintenance Expense
	650	Advertising Expense
	660	Insurance Expense
	670	Depreciation Expense
	680	Interest Expense
	690	Bad Debt Expense
	695	Miscellaneous Expense

Asset Information: Truck, $7,000 cost, 5 year life, $500salvage value
	Computation				End of Year
Month	Depreciable Cost	Depreciation Rate	=	Monthly Depreciation Expense	Accumulated Depreciation	Book Value
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

Asset Information: Lawn Mower, $300 cost, 2 year life,$0 salvage value
	Computation				End of Year
Month	Depreciable Cost	Depreciation Rate	=	Monthly Depreciation Expense	Accumulated Depreciation	Book Value
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

Asset Information: Aerator, $500 cost, 2 year life, $0salvage value
	Computation				End of Year
Month	Depreciable Cost	Depreciation Rate	=	Monthly Depreciation Expense	Accumulated Depreciation	Book Value
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

Asset Information: Building, $37,000 cost, 10 year life,$5,000 salvage value
	Computation				End of Year
Month	Depreciable Cost	Depreciation Rate	=	Monthly Depreciation Expense	Accumulated Depreciation	Book Value
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

Asset Information: Trailer, $2,300 cost, 5 year life, $0salvage value
	Computation				End of Year
Month	Depreciable Cost	Depreciation Rate	=	Monthly Depreciation Expense	Accumulated Depreciation	Book Value
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

Asset Information: Trimmer, $1,200 cost, 2 year life, $0salvage value
	Computation				End of Year
Month	Depreciable Cost	Depreciation Rate	=	Monthly Depreciation Expense	Accumulated Depreciation	Book Value
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

Asset Information: Leaf Blower, $1,500 cost, 2 yearlife, $0 salvage value
	Computation				End of Year
Month	Depreciable Cost	Depreciation Rate	=	Monthly Depreciation Expense	Accumulated Depreciation	Book Value
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

tanmuskrat773

ACCT 1A Lecture Notes - Lecture 6: Ddb Worldwide, Book Value, Income Statement

Document Summary

Get access

Related Documents

ACCT 1A Lecture Notes - Lecture 8: Book Value, Ddb Worldwide, Institute For Operations Research And The Management Sciences

ACCT 1A Lecture Notes - Lecture 3: Book Value, Retained Earnings, Impaired Asset

ACCT 1A Lecture Notes - Lecture 9: Book Value, Historical Cost, Financial Statement

Related Questions