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27 September, 20:54

A storage tank acquired at the beginning of the fiscal year at a cost of $75,000 has an estimated residual value of $10,000 and an estimated useful life of 20 years. Determine the following:

(A) the amount of annual depreciation by the straight-line method.

(B) the amount of depreciation for the first and second years computed by the double-declining-balance method.

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  1. 27 September, 21:07
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    A. $3,250

    B. $7500

    $6750

    Explanation:

    A. Depreciation expense using the straight line depreciation method:

    (Actual cost - Salvage value) / number of years

    = ($75,000 - $10,000) / 20 = $3,250

    B. Depreciation expense using the double declining depreciation method:

    (Actual cost / number of years) * 2

    For year 1 = ($75,000/20) * 2 = $7500

    Net book value = $75,000 - $7500 = $67,500

    Depreciation expense for year 2 = ($67500 / 20) * 2 = $6750
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