Sheffield Corporation purchased machinery on January 1, 2017, at a cost of $250,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $24,000. The company is considering different depreciation methods that could be used for financial reporting purposes. Required:Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate.

Answer and Explanation:

(A) Depreciation Schedules Under Straight line method

Depreciation rate under straight line method = 1 ÷ Useful life of asset

= 1 ÷ 4

=25%      

Depreciable cost = Cost of the Asset - Salvage value

= $250,000 - $24000

= $226,000

Year    Depreciable   Depreciation     Annual        Accumulated   Book

                cost      rate                Depreciation  Depreciation  Value

                                                            Expense

2017     $226,000       25%             $565,00          56,500       $193,500

                                                                                  ($250,000 - $56,500)

2018     $226,000       25%             $565,00          $113,000      $137,000

                                                                                   ($193,500 - $56,500)

2019     $226,000       25%             $565,00          $169,500    $80,500

                                                                                    ($137,000 - $56,500)

2020     $226,000       25%             $565,00         $226,000    $24,000

                                                                                    ($80,500 - $56,500)

For computing the annual depreciation we simply multiply the depreciable cost with depreciation rate.

(B) Depreciation Schedules Under Double declining balance method

Depreciation rate under Double declining Balance method

= 2 × Straight line method

= 2 × 25%

= 50%

Year   Book value   Depreciation     Annual        Accumulated   Book

           beginning      rate                Depreciation  Depreciation  Value

          of the year                                 Expense

2017    $250,000      50%               $125,000    $125,000     $125,000     2018    $125,000       50%             $62,500       $187,500      $62,500     2019     $62,500        50%            $31,250         $218,750      $31,250  

2020    $31,250                             $7,250         $226,000      $24,000

For computing the annual depreciation expenses we simply multiply the book value beginning of the year with depreciation rate.  

2020 Depreciation balance

= Book Value beginning 2020 - Salvage value

= $31,250 - $24,000

= $7,250      

answerthe above statement is false;