Benick Industries purchased a new lathe on January 1, 2011, for $300,000. Benick estimates that the lathe
Question:
Benick Industries purchased a new lathe on January 1, 2011, for $300,000. Benick estimates that the lathe will have a useful life of four years and that the company will be able to sell it at the end of the fourth year for $60,000.
a. Compute the depreciation expense that Benick Industries would record for 2011, 2012, 2013, and 2014 under each of the following methods:
(1) Straight-line depreciation
(2) Double-declining-balance depreciation
b. If you were the president of Benick Industries, what might you consider when choosing a depreciation method for financial reporting purposes? Why?
Step by Step Answer:
a 1 Straightline depreciation Depreciation per Year Cost Salvage Value Useful Life 300000 60000 4 ye...View the full answer
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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