# On 1/1/16, Johnson, Inc. purchased a new Backhoe (equipment) for cash. The machine cost $83,000.... ## Question: On 1/1/16, Johnson, Inc. purchased a new Backhoe (equipment) for cash. The machine cost$83,000. It had an estimated residual value of $20,000 and an estimated service life of 7 years. Calculate depreciation expense for 2016 and 2017. a. using straight-line depreciation. b. using sum of the years digits. c. using 200% declining balance. ## Depreciation: There are two methods to record depreciation expense. The first method is the direct method under which depreciation expense is recorded in the asset account which made the book value of the asset as the ending balance. The second method the accumulated balance method, it records the depreciation in a separate account. ## Answer and Explanation: Compute depreciation expense as follows: - Computation for depreciation expense Particulars (a) Straight-Line (b) Sum-of-year digit (c) Double Declining Asset Cost (a)$83,000.00 $83,000.00$83,000.00
Less: Salvage Value of Asset -$20,000.00 -$20,000.00 -$20,000.00 Depreciable Value of Asset (b)$63,000.00 $63,000.00$63,000.00
Useful Life of Asset (in years) 7 7 7
Depreciation Expense:
2016 $4,725$15,750.00 $23,714.29 2017$6,300 $13,500.00$16,938.78 