Question

On January 2, 2011, Mode Corporation acquired a new machine with an estimated useful life of three years. The cost of the equipment was $40,000 with a residual value of $5,000.
a. Make journal entries of depreciation and relevant ledger accounts under the two depreciation methods listed below. Also show the impact of accumulated depreciation in balance sheet.
In each case, assume that a full year of depreciation was taken in 2011.
1. Straight-line.
2. 200 percent declining-balance.

Answer 1

1.Straight line

Cost of equipment = $40,000

Salvage Value      = $5,000

Useful Life of Asset = 3 years

Depreciation =Cost of the equipment – Salvage Value)÷useful life of asset.

=$\frac{(40000-5000)}{3}$

=$11,666.66

2. 200 percent declining-balance

The rate of Depreciation is two times the straight line rate of Depreciation.

Rate of Depreciation =2× $\frac{1} {3}$ =66.67%