Consider a system of notebook computers for a college math laboratory. The set of computers costs $10,000 and will be salvaged for $2,000 at the end of a 3-year period. Prepare a depreciation schedule using a 150%-declining balance rate for the system. The depreciation schedule should include the following information for each year: the year’s depreciation, the accumulated depreciation, and the year’s end-of-book value.
To prepare a depreciation schedule using a 150% declining balance rate for the system of notebook computers, we can follow these steps:
Step 1: Calculate the straight-line depreciation rate.
The straight-line depreciation rate is calculated by dividing 1 by the useful life of the asset. In this case, the useful life is 3 years.
Straight-line depreciation rate = 1 / useful life
Straight-line depreciation rate = 1 / 3 = 0.3333
Step 2: Calculate the declining balance rate.
The declining balance rate is determined by multiplying the straight-line depreciation rate by a factor. In this case, the factor is 1.5 (150%).
Declining balance rate = Straight-line depreciation rate * Factor
Declining balance rate = 0.3333 * 1.5 = 0.4999
Step 3: Prepare the depreciation schedule.
Year 1:
Depreciation = Declining balance rate * Book value at the beginning of the year
= 0.4999 * $10,000 = $4,999
Accumulated depreciation = Year 1 depreciation
= $4,999
End-of-book value = Book value at the beginning of the year - Year 1 depreciation
= $10,000 - $4,999 = $5,001
Year 2:
Depreciation = Declining balance rate * Book value at the beginning of the year
= 0.4999 * $5,001 = $2,500
Accumulated depreciation = Year 1 depreciation + Year 2 depreciation
= $4,999 + $2,500 = $7,499
End-of-book value = Book value at the beginning of the year - Year 2 depreciation
= $5,001 - $2,500 = $2,501
Year 3:
Depreciation = Declining balance rate * Book value at the beginning of the year
= 0.4999 * $2,501 = $1,250
Accumulated depreciation = Year 2 depreciation + Year 3 depreciation
= $7,499 + $1,250 = $8,749
End-of-book value = Book value at the beginning of the year - Year 3 depreciation
= $2,501 - $1,250 = $1,251
Note: The book value at the end of year 3 will be the salvage value of $2,000, as mentioned in the question.
So, the depreciation schedule for the system of notebook computers is as follows:
Year 1: Depreciation = $4,999, Accumulated depreciation = $4,999, End-of-book value = $5,001
Year 2: Depreciation = $2,500, Accumulated depreciation = $7,499, End-of-book value = $2,501
Year 3: Depreciation = $1,250, Accumulated depreciation = $8,749, End-of-book value = $1,251