Becker Office Service purchased a new computer system in 2016 for $36,300. It is expected to have a five-year useful life and a $2,500 salvage value. The company expects to use the system more extensively in the early years of its life.

Becker Office Service purchased a new computer system in 2016 for $36,300. It is expected to have a five-year useful life and a $2,500 salvage value. The company expects to use the system more extensively in the early years of its life.

Required

a.	Calculate the depreciation expense for each of the five years, assuming the use of straight-line depreciation.

Calculate the depreciation expense for each of the five years, assuming the use of double-declining- balance depreciation.

Explanation:

a.

Straight-line

(Cost – Salvage value) ÷ Useful life = Annual depreciation

Year 1	($36,300	−	2,500)	÷	5	=	$	6,760	per year
2								6,760
3								6,760
4								6,760
5								6,760

b.

Double-declining balance

Accum. depreciation

(Cost – at beginning of period) × (2 × SL rate) = Annual depreciation

Year 1	($	36,300	−	$	0	)	×	(2	×	0.20	)	=	$	14,520
2	($	36,300	−	$	14,520	)	×	(2	×	0.20	)	=		8,712
3	($	36,300	−	$	23,232	)	×	(2	×	0.20	)	=		5,227
4	($	36,300	−	$	28,459	)	×	(2	×	0.20	)	=		3,136
5	($	36,300	−	$	31,595	)	×	(2	×	0.20	)	=		2,205	*

*The total depreciable cost is $33,800 ($36,300 − $2,500). The depreciation taken in Year 5 is limited to $2,205 [$33,800 – ($14,520 + $8,712 + $5,227 + $ 3,136)].

d.

Straight-line:

Book value	$	36,300		–	$	20,280	*	=	$	16,020
Sales price	$	19,000
Book value		(16,020	)
Gain	$	2,980

*6,760 × 3 = $20,280

Double-declining-balance:

Book value	$	36,300		–	$	28,459	*	=	$	7,841
Sales price	$	19,000
Book value		(7,841	)
Gain	$	11,159

*$14,520 + $8,712 + $5,227 = $28,459

Thank you!