[kerensak]

I am having trouble figuring out this problem for my Financial Accounting class since I missed the day he explained it I am having a problem.

PROBLEM:
Smart Hardware purchased new shelving in its store on April 1, 2005. The shelving is expected to have a 20-year life and NO residual value. The following expenditures were associated with the purchase:

Cost of Shelving... 12,000
Freight Charges... 520
Sales Taxes... 780
Installation of Shelving... 2700
Cost to Repair Shelf Damaged During Installation... 400

Compute the depreciation expense for the years 2005 through 2008 under each depreciation method listed:
1. Straight-line, w/ fractional years rounded to the nearest whole month.
2. 200 percent declining-balance, using the half-year convention.
3. 150 percent declining-balance, using the half-year convention.



Now from what I see in the book I use $16,000, but I don't know what to multiply it by for each and I don't know the end value because there is no residual value, can someone please help?

Also, I just forgot to say that for straight line I used: 16000 x 1/20 x 9/12 but I am not sure it's right. And I used 16000 x 10% x 9/12 for the 150% Declining Balance.

Any help would be greatly appreciated. And I have worked this problem out several times, but each time I don't get the same answer.

[CaptainForest]

The first question is what is the total value of the shelves?

Cost of Shelving... 12,000 + Freight Charges... 520 + Sales Taxes... 780 + Installation of Shelving... 2700

= $16,000

Why did I NOT include… Cost to Repair Shelf Damaged During Installation... 400??

Because repairs to fix damage are NOT included the total value of the asset.


Summary: Cost of Asset = $16,000
Asset Bought April 1, 2005
Useful Life 20 yrs
No salvage Value

Compute the depreciation expense for the years 2005 through 2008 under each depreciation method listed:
1. Straight-line, w/ fractional years rounded to the nearest whole month.

Depreciation/year = $16,000/20 = 800

Note: You would treat all years as straight line EXCEPT for year one which you would record only 9 of 12 months (April 1–Dec 31 = 9 months)

Year End- Dep Expense-----Acc Dep-----------BV
2005-------800*9/12= 600---- 600-----------15,400
2006----- 800----------------1,400-----------14,600
2007----- 800----------------2,200-----------13,800
2008----- 800----------------3,000-----------13,000

Compute the depreciation expense for the years 2005 through 2008 under each depreciation method listed:
2. 200 percent declining-balance, using the half-year convention.

Depreciation Rate: 1/[20/2] = 1/10 = .1

Year 1 = 16,000 x .1 x .5 (b/c of half life rule) = 800
Year 2 = 16,000-800 = 15,200 x .1 = 1,520
Etc.

Year End----Dep. Expense-----Acc. Dep
2005----------800.00-------------800.00
2006----------1,520.00----------2,320.00
2007----------1,368.00----------3,688.00
2008----------1,231.20----------4,919.20

Compute the depreciation expense for the years 2005 through 2008 under each depreciation method listed:
3. 150 percent declining-balance, using the half-year convention.

Depreciation Rate: 1/[20/1.5] = 1/13.3 = .075

Year 1 = 16,000 x .075 x .5 (b/c of half life rule) = 600
Year 2 = 16,000-600 = 15,400 x .075 = 1,155
Etc.

Year End----Dep. Expense-----Acc. Dep
2005----------600.00-------------600.00
2006----------1,155.00----------1,755.00
2007----------1,068.38----------2,823.38
2008----------988.25----------3,811.63

[kerensak]

Thank you so much for explaining how to do it. My teacher never talked about the formulas. He just gave us the answers and didn't explain it. Thank you!

[CaptainForest]

You're welcome