Determine the annual depreciation expense for each of the estimated four years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method.

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1. New tire retreading equipment, acquired at a cost of $140,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of $10,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fourth year, the equipment was sold for $23,300. Instructions 1. Determine the annual depreciation expense for each of the estimated four years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. The following columnar headings are suggested for each schedule: Year Depreciation Expense Accumulated Depreciation, End of Year Book value, End of Year 2. Illustrate the effects on the accounts and financial statements of the sale. 3. Illustrate the effects on the accounts and financial statements of the sale, assuming a sale price of $15,250 instead of $23,300.

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Straight-Line
(10% of begin-salvage every year)
Double-Declining
(20% of year\’s beginning book
value every year)
Year Depr Book Accum Depr Book Accum
1 32500 107500 32500 70000 70000 70000
2 32500 75000 65000 35000 35000 105000
3 32500 42500 97500 11700 23300 116700
4 32500 10000 130,000 30963 23300 59,040

Straight line mrthod

Cost of machine 140,000

Less : Salvage 10,000

Balance 130,0000

Depriciation 130000/4 = 32500

Under Double declining mehod

Cost of machine 140,000

Less : Salvage 23,300

Balance 116,700

Depriciation will be 50% each year i.e. double then stright line mrthod

assuming a sale price of $15,250 instead of $23,300

Cost of machine 140,000

Less : Salvage 15,250

Balance 124750

Depriciation will be 50% each year i.e. double then stright line mrthod

Year Depriciation Book value Accumulated
1 70000 70000 70000
2 35000 35000 105000
3 17500 17500 122500
4 2250 15250 124750

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