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Depreciation Methods and Switching Methods

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E11 - 5 Depreciation methods
For each of the following depreciable assets, determine the missing amount (?). Abbreviations for depreciation methods are SL for straight line, SYD for sum-of-the-years' digits, and DDB for double-declining balance.

E 11-10 Double-declining-balance method; switch to straight line.
On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $30,625. The expenditures made to acquire the asset were as follows:

Jackson's policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life.
Required:
1. Calculate depreciation for each year of the asset's eight-year life.
2. Discuss the accounting treatment of the depreciation on the equipment.

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The attached MS Word document also shows how the problems E11-5 and E11-10 are calculated. Discussion regarding depreciation in E11-10 in also included.

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E11-5

A. $24,000 / 40% = $60,000 - $20,000 = $40,000
$40,000 / 40% = $100,000

Proof
$100,000 x 40% = $40,000
$100,000 - $40,000 = $60,000
$60,000 x 40% = $24,000 Depreciation 2nd year

B. Sum of years 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36
$7,000 / 7/36 = $7,000 x 36/7 = $36,000
$40,000 - $36,000 = 4,000 residual value

Proof
$40,000 - $36,000 x 7/36 = $7,000 Depreciation 2nd year

C. $65,000 - $5,000 = ...

Solution Summary

This solution is comprised of two accounting problems that deal with computing depreciation using three methods. These methods are: straight-line, double-declining-balance, and sum-of-the-years' digits. One problem contains a particular situation of interest. The company policy is to use the double-declining-balance method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life. The problem also requires a discussion about the situation.

Both problem solutions contain detailed step-by-step calculations plus the required discussion about the treatment of switching depreciation methods and therefore provide students with a clear understanding of the concepts.

Thank you for using BrainMass.com. Have a great day!

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