Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 9-3

^aDepreciable cost is original cost ($230,000) less estimated salvage ($30,000).

^bDepreciation rate (straight-line) equals 100% divided by the estimated service life (5 years). ^Accumulated depreciation is the total depreciation expense reported to date. Thus, the accumulated depreciation at the end of the first year is equal to the depreciation expense for that first year. The accumulated depreciation at the end of the second year is equal to the total of the depreciation expense figures for the first and second years.

^dBook value is determined by the original cost less the depreciation taken to date (accumulated depreciation). Thus, book value at the end of the first year is $230,000 - $40,000 = $190,000. Book value at the end of 2018 is $230,000 - $200,000 = $30,000 (the $30,000 is the estimated salvage value).

^aBook value is original cost less accumulated depreciation. The book value of the asset at the beginning of the asset's first year is the asset's acquisition cost.

^bThe depreciation rate is a multiple of the straight-line rate. The straight-line rate is 100% divided by the 5-year service life which is 20%. The depreciation rate for the double declining-balance method is twice the straight-line rate. 2 X 20% = 40%.

^cAn asset is not to be depreciated ...