Equipment acquired at a cost of $105,000 has an estimated residual value of $12,000 and an estimated useful life of 10 years

Equipment acquired at a cost of $105,000 has an estimated residual value of $12,000 and an estimated useful life of 10 years. It was placed into service on May 1 of the current fiscal year, which ends on December 31. Determine the depreciation for the current fiscal year and for the following fiscal year by (a) the straight-line method and (b) the double-declining-balance method.

Answer:

a. 

Year 1:  ($105,000 – $12,000) ÷ 10 = $9,300; $9,300 × (8 ÷ 12) = $6,200

Year 2:  ($105,000 – $12,000) ÷ 10 = $9,300

b. 

Year 1:  8 ÷ 12 × 20% of $105,000 = $14,000

Year 2:  20% of ($105,000 – $14,000) = $18,200