Problem 8-30B Calculating depreciation expense using four different methods
Todd Service Company purchased a copier on January 1, Year 1, for $25,000 and paid an additional $500 for delivery charges. The copier was estimated to have a life of four years or 1,000,000 copies. Salvage value was estimated at $1,500. The copier produced 250,000 copies in Year 1 and 270,000 copies in Year 2.
Required
Compute the amount of depreciation expense for the copier for calendar years Year 1 and Year 2, using the following methods:
a. Straight-line
b. Units-of-production
c. Double-declining-balance
d. MACRS, assuming that the copier is classified as five-year property
Problem 8-31B Purchase and use of tangible asset: three accounting cycles, double-declining-balance depreciation
The following transactions pertain to Accounting Solutions Inc. Assume the transactions for the purchase of the computer and any capital improvements occur on January 1 each year.
Year 1
- Acquired $80,000 cash from the issue of common stock.
- Purchased a computer system for $35,000. It has an estimated useful life of five years and a $5,000 salvage value.
- Paid $2,450 sales tax on the computer system.
- Collected $65,000 in fees from clients.
- Paid $1,500 in fees to service the computers.
- Recorded double-declining-balance depreciation on the computer system for Year 1.
- Closed the revenue and expense accounts to Retained Earnings at the end of Year 1.
Year 2
- Paid $1,000 for repairs to the computer system.
- Bought off-site backup services to maintain the computer system, $1,500.
- Collected $68,000 in fees from clients.
- Paid $1,500 in fees to service the computers.
- Recorded double-declining-balance depreciation for Year 2.
- Closed the revenue and expense accounts to Retained Earnings at the end of Year 2.
Year 3
- Paid $6,000 to upgrade the computer system, which extended the total life of the system to six years. The salvage value did not change.
- Paid $1,200 in fees to service the computers.
- Collected $70,000 in fees from clients.
- Recorded double-declining-balance depreciation for Year 3.
- Closed the revenue and expense accounts at the end of Year 3.
Required
a. Use a horizontal statements model like the following one to show the effect of these transactions on the elements of the financial statements. Use + for increase, − for decrease, and NA for not affected. The first event is recorded as an example.
b. For each year, record the transactions in general journal form and post them to T-accounts.
c. Use a vertical model to present financial statements for Year 1, Year 2, and Year 3
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