Sandblasting equipment acquired at a cost of $42,000 has an estimated residual value of $6,000 and an estimated useful life of 10 years. It was placed in service on October 1 of the current fiscal year, which ends on December 31, 20Y5.

a. Determine the depreciation for 20Y5 and for 20Y6 by the straight-line method.

Depreciation

20Y5 $ 900

20Y6 $ 3600

b. Determine the depreciation for 20Y5 and for 20Y6 by the double-declining-balance method.

Depreciation

20Y5 $

20Y6 $

a. Depreciation

20Y5 $900

20Y6 $3600

b. Depreciation

20Y5 $2,100

20Y6 $7,980

Explanation:

The computation of the depreciation expense for the second year is shown below:

a) Straight-line method:

= (Original cost - residual value) : (useful life)

= ($42,000 - $6,000) : (10 years)

= ($36,000) : (10 years)

= $3,600

In year 20Y5 the equipment is purchased on October 1 and we have to calculated till December 31. So, 3 months depreciation should be charged in year 1

= $3,600 * (3 months : 12 months)

= $900

And in year 20Y6, the depreciation expense is $3,600

In this method, the depreciation is same for all the remaining useful life

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= Percentage : useful life

= 1 : 10

= 10%

Now the rate is double So, 20%

In year 20Y5, the original cost is $42,000, so the depreciation is $ 8,400 after applying the 50% depreciation rate. This is full month depreciation but we have to find for only 3 months.

So, $8,400 * (3 months : 12 months)

= $2,100

And, in year 20Y6, the depreciation expense would be

= ($42,000 - $2,100) * depreciation rate

= $39,900 * 20%

= $7,980