Sandblasting equipment acquired at a cost of $40,000 has an estimated residual value of $8,000 and an estimated useful life of eight years. It was placed into service on April 1 of the current fiscal year, which ends on December 31.

a. Determine the depreciation for the current fiscal year and for the following fiscal year by the straight-line method.

Depreciation

Year 1 $?

Year 2 $?

b. Determine the depreciation for the current fiscal year and for the following fiscal year by the double-declining-balance method.

Depreciation

Year 1 $?

Year 2 $?

a. $3,000; $4,000

b. $7,500; $8,125

Explanation:

The computation of the depreciation expense under each method is shown below:

a) Straight-line method:

= (Original cost - residual value) : (useful life)

For year 1

= ($40,000 - $8,000) : (8 years)

= ($32,000) : (4 years)

= $4,000

In the first year, the nine months depreciation would be charged

= $4,000 * 9 months : 12 months

= $3,000

The 9 months is calculated from April 1 to December 31

In this method, the depreciation is same for all the remaining useful life

So, in year 2, the depreciation expense is $4,000

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= Percentage : useful life

= 100 : 8

= 12.5%

So, the rate would be double i. e 25%

In year 1, the original cost is $40,000, so the depreciation expense is

= $40,000 * 25% * 9 months : 12 months

= $7,500

The 9 months is calculated from April 1 to December 31

And, in year 2, the depreciation expense would be

= ($40,000 - $7,500) * 25%

= $8,125