Chapter 10: Long-term Assets, Depreciation Methods ACCT 102 WEB2 Background: We own a swimming pool business and install high-end specialty inground pools for homeowners. We have purchased the following: 1. Used 2014 Bobcat Skidsteer Loader on 01/01/2019 for $35,000. It had 1392 hours on it when we purchased it, and carried a blue book value on it of $41,000 at that time. The life-expectancy for it is about 5,000 hours total or about 4 years as of the date we purchased it. In 2019 we put 945 hours on it. 2020 we had 1178 hours. 2021 we had 1424 hours. 2022 it refused to start up for us when we began the work season, and we did not have time to fix it, so it sat while we paid to lease equipment. Depreciation: 2019 Bobcat Skidsteer Straight-Line Depreciation Formula: Cost - Residual Value = Annual Depreciation *Remember, straight-line depreciation provides the same amount of depreciation expense for EACH year of the asset's useful life. Useful Life Calculate the depreciation for the expected life of our Bobcat Skidsteer YOUR Calculations for 2019 (use proper Excel Formulas!): Calculate the straight-line percentage: Fill in the depreciation schedule Depreciation Schedule **Depreciation Schedule is a term your textbook does not discuss. Typically schedules are created when calculating depreciation, amortization, or depletion for tax purposes. Amoritization schedules are also typically created for loans (such as mortgages, auto loans, etc.). Year Book value at beginning of year Accumulated Depreciation Current Year Depreciation Book value at year-end 2019 2020 2021 2022 2023 Fill in the journal entry for the 2022 depreciation: Date Account Titles & Explanation P.R. Debit Credit *Remember, Units-of-Activity depreciation provides the same amount of depreciation expense for each unit of activity of the asset - in this case, hours used. Units-of-Activity Method Formula: Cost - Residual Value = Depreciation per hour Total Estimated Units of Activity YOUR Calculations for 2019 (use proper Excel Formulas!): *Take caution: We can NOT take depreciation for hours that were already on the machinery before we purchased it! Fill in the depreciation schedule Depreciation Schedule Year Book value at beginning of year Hours Used Accumulated Depreciation Current Year Depreciation Book value at year-end 2019 2020 2021 2022 2023 Fill in the journal entry for the 2022 depreciation: Date Account Titles & Explanation P.R. Debit Credit Question: Since the machinery was not used in 2022 at all, are we allowed to take a depreciation expense if using the Units-of-Activity method? Why or why not? Your Answer: Double-Declining-Balance (aka DDB): Step 1: Determine straight-line percentage, using the expected life. (You did this above already!) *Remember, double-declining balance method provides for a declining periodic expense over the expected useful life. It is an accelerated method of depreciation. Step 2: Determine the double-declining rate: straight-line percentage x 2. Step 3: Compute depreciation expense: double-declining balance rate x book value of asset at beginning of year. YOUR Calculations for 2019 (use proper Excel Formulas!):