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# ACC305 Wk 5 E11-5 (page 599) and E11-10 (page 600) fin571

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ACC305 Wk 5 E11-5 (page 599) and E11-10 (page 600)
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This 3 page Study Guide was uploaded by an elite notetaker on Monday November 9, 2015. The Study Guide belongs to fin571 at Kaplan University taught by in Fall 2015. Since its upload, it has received 27 views.

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Date Created: 11/09/15
E11-5 (page 599) - Depreciation methods; solving for unknowns ● LO2 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. Exercise 11­5 Asset A: Straight­line rate is 20% (1÷ 5 years) x 2  =  40% DDB rate \$24,000              =  \$60,000  =  Book value at the beginning of year 2    .40 Cost ­ (Cost  x  40%)  =  \$60,000 .60Cost  =  \$60,000 Cost  =  \$100,000 Asset B: Sum­of­the­years’ digits is 36 {[8 (8 + 1)]÷2} (\$40,000 ­ residual)  x  7/36  =  \$7,000 \$280,000 – 7residual ­­­­­­­­­­­­­­­­­­­­­­­­­­   =  \$7,000                 36 \$280,000 ­ 7residual  =  \$252,000 7residual  = \$28,000 Residual   = \$4,000 Asset C:                                          = \$6,000              Life Life = 10 years Asset D: \$230,000 ­ \$10,000 = \$220,000 depreciable base \$220,000  ÷ 10 years = \$22,000 per year Method used is straight­line. Asset E: Straight­line rate is 12.5% (÷ 8 years) x 1.5  =  18.75% rate Year 1 \$200,000  x  18.75%  =  \$37,500 Year 2 (\$200,000 ­ 37,500)  x  18.75%  =   \$30,469 E11-10 (page 600) - Jackson Company - Double-declining- balance method; switch to straight line ● LO2 LO6 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. Exercise 11­10 Requirement 1 Cost of the equipment: Purchase price \$154,000 Freight charges 2,000 Installation charges      4,000 \$160,000 Straight­line rate of 12.5% (1÷ 8 years) x 2 = 25% DDB rate. Book Value Beginning Depreciation Book Value Year of Year X Rate per Year = Depreciation End of Year 2011 \$160,000 25% \$  40,000 \$120,000 2012   120,000 25%     30,000     90,000 2013     90,000 25%     22,500     67,500 2014    67,500 25%     16,875     50,625 2015    50,625 *       5,000     45,625 2016    45,625 *       5,000     40,625 2017    40,625 *       5,000     35,625 2018    35,625 *     5,000     30,625 Total \$129,375 * Switch to straight­line in 2015: Straight­line depreciation:                                             =  \$5,000 per year               4 years Requirement 2 For plant and equipment used in the manufacture of a product, depreciation is a product cost and is included in the cost of inventory.  Eventually, when the product is sold, depreciation will be included in cost of goods sold.

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