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Discussion Questions:
2) What are the two items on the Assets side of the Balance Sheet under "Plant and Equipment" that
CANNOT be depreciated or appreciated by a company?
*** Please note the following example below. The Exercise Questions that follow this example must
use the format below in answering each of the questions. ***
Cruisers, Inc., purchased a molding machine at the beginning of 2010 at a cost of $22,000. The
machine is estimated to have a useful life of to Cruisers, Inc., of 5 years and an estimated salvage value
of $2,000. It is estimated that the machine will produce 200 boat hulls before it wears out.
A) Straight-Line Depreciation:
C) Declining-Balance Depreciation:
Depreciation
Net Book Value At Expense For The Accumulated Net Book Value
Year Beginning Of Year X Factor = Year Depreciation At End Of Year
2010 $22,000 X 0.4 = $8,800 $8,800 $13,200
2011 13,200 X 0.4 = 5,280 14,080 7,920
2012 7,920 X 0.4 = 3,168 17,248 4,752
2013 4,752 X 0.4 = 1,901 19,149 2,851
2014 2,851 X 0.4 = 851 20,000 2,000
Exercise Questions:
1) Lucianno’s Pizza purchased a car to be used in delivering pizzas. The car cost $14,000 (Cost). It will be
used for 5 years (Number of years). After 5 years the residual value (Salvage Value) will be about $2,000.
In these 5 years, Lucianno’s estimates the car will be driven 80,000 miles (Units). Clearly show the
depreciation for each year.
A) Calculate the depreciation for all 5 years using the “Straight-line depreciation method”
B) Calculate the depreciation for all 5 years using the “Units-of-production depreciation method”
Hint: The car was driven a total of 80,000 miles. Miles are the unit.
2) ABC Marketing recently purchased a machine that coast $80,000 (Cost). The machine is expected to
last 4 years and has a residual value of $6,000. Calculate the depreciation expense to be recorded each
year using the “Declining – Balance depreciation method”.
3) Exercise 6.8A (Again use the same presentation as shown on Exhibit 6-4): Depreciation Calculation
Method. Kleener Co. acquired a new delivery truck at the beginning of its current fiscal year. The truck
cost $26,000 and has an estimated useful life of 4 years and an estimated salvage value of $4,000.
Calculate depreciation expense for each year of the truck’s life using: