Page 1 of 2 Practice Chapter 1The Depreciation tion Process

Page 1 of 2 Practice - Chapter 1-The Depreciation tion Process Parson Company purchased a stamping machine for $480,000 on January company expects to use the machine for five years. Managers stamping machine is used for five years, it can be sold for $70,000. anticipate that after the PROVIDE A SEPARATE SHEET OF PAPER SHOWING CALCULATIONS USED TO COMPLETE THE CHART BELow In the chart below, record the amount of depreciation expense that would record under each method for the years indicated. Straight-Line Double-Declining Balance 2008 32, 2009 S 8206 2010 310s S 30 72 2011 s_g2.??? 2012 ,0 Based on your work above, answer the questions below, assuming each is s IIS,2.0 separate and independent from the others. a. What is the differential impact on Parson Company\'s 2008 net income if the company chooses straight-line depreciation or the double-declining balance method? b. How would the stamping machine be reported on Parson Company\'s balance sheet as of December 31, 2009 if straight-line depreciation had been used? Machine Accumulated Depreciation

Solution

a Straight line method b Machine 480000 Accumulated depreciation 164000 316000 c Straight line 31-Dec-10 Depreciation expense 82000              Accumulated depreciation - machine 82000 Double declining 31-Dec-10 Depreciation expense 69120              Accumulated depreciation - machine 69120 2 Double declining method Depreciation rate = [(cost of asset / life of asset ) / cost of asset ] *2 Depreciation rate = [480,000/5)/480,000] *2 Depreciation rate = 40% Depreciation = written down value * depreciation rate Accumulated depreciation Depreciation expense Book value 01-01-2008 480000 2008 480000*40% 192000 1,92,000 2,88,000 2009 288000*40% 115200 3,07,200 1,72,800 2010 172800*40% 69120 3,76,320 1,03,680 2011 103680*40% 41472 4,17,792 62,208.0 2012 62208*40% 24883 4,42,675 37,325 1 Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset Depreciation expense = (480000-70000) /5 82000 Depreciation expense Accumulated depreciation Book value 01-01-2008 0 480000 2008 82000*12/12 82,000 82,000 3,98,000 2009 82000*12/12 82,000 1,64,000 3,16,000 2010 82000*12/12 82,000 2,46,000 2,34,000 2011 82000*12/12 82,000 3,28,000 1,52,000 2012 82000*12/12 82,000 4,10,000 70,000 d Accumulated depreciation Straight line 328000 Double declining method 4,17,792