Answer:
1. Purchase of computer system:
Debit = Computer System Account = $85000
Credit = Cash Account = $85000
2. Depreciation expense (straight-line)
Debit = Depreciation Account = $14000
Credit = Accumulated Depreciation Account = $14000
3. Depreciation expense (double-declining-balance)
Debit = Depreciation Account = $34000
Credit = Accumulated Depreciation Account = $34000
Explanation:
1. Straight-Line Method:
This is calculated by finding the difference between the asset's cost and salvage value and then dividing it by the number of years it will be used. It is the simplest method of calculating depreciation and believes that the asset's value depreciates equally every year. Depreciation per year is calculated as:
(Cost - Salvage value) / Number of useful life
($85,000 - $15000) / 5 = $14000
Depreciation for Year 1 = $14000
2. Double-declining balance Method:
This is where the asset's value is depreciated at twice the rate than the straight line method. The depreciation amounts would be higher in the early years of the asset's life and gradually reduce towards the end. Hence, it does not mean that the depreciation amount would be higher than the straight line basis.
Straight Line depreciation per year = 1/5* x 100 = 20%
*as it is useful for five years
Hence double-depreciation value = 20% x 2 = 40%
Depreciation for year 1 = $85000 x 40% = $34000
Recording entries
1. Purchase of computer system:
Debit = Computer System Account = $85000
Credit = Cash Account = $85000
2. Depreciation expense (straight-line)
Debit = Depreciation Account = $14000
Credit = Accumulated Depreciation Account = $14000
3. Depreciation expense (double-declining-balance)
Debit = Depreciation Account = $34000
Credit = Accumulated Depreciation Account = $34000
