Rembrandt
Company acquired a plant asset at the beginning of Year 1.
E11-2
(Depreciation—Conceptual Understanding) Rembrandt Company acquired a plant
asset at the beginning of Year 1. The asset has an estimated service life of 5 years.
An employee has prepared depreciation schedules for this asset using three
different methods to compare the results of using one method with the results
of using other methods. You are to assume that the following schedules have
been correctly prepared for this asset using:
(1) the
straight-line method,
(2) the
sum-of-the-years’-digits method, and
(3) the
double-declining-balance method.
|
Year
|
Straight-Line
|
Sum-of-Years'-Digits
|
Double-Declining-Balance
|
|
1
|
$9,000
|
$15,000
|
$20,000
|
|
2
|
9,000
|
12,000
|
12,000
|
|
3
|
9,000
|
9,000
|
7,200
|
|
4
|
9,000
|
6,000
|
4,320
|
|
5
|
9,000
|
3,000
|
1,480
|
|
Total
|
$45,000
|
$45,000
|
$45,000
|
Instructions
Answer the following questions.
(a) What
is the cost of the asset being depreciated?
(b) What
amount, if any, was used in the depreciation calculations for the salvage value
for this asset?
(c) Which
method will produce the highest charge to income in Year 1?
(d) Which
method will produce the highest charge to income in Year 4?
(e) Which
method will produce the highest book value for the asset at the end of Year 3?
(f) If
the asset is sold at the end of Year 3, which method would yield the highest
gain (or lowest loss) on disposal of the asset?
TUTORIAL
PREVIEW
(a) What
is the cost of the asset being depreciated?
|
If there is any slvage
value and the amount is unknown (as in the case here), the cost would have to
be determined by looking at the data for the double-delining balance method.
|
