Main Street Hospital was tired of hearing complaints about the long wait times in the emergency room  so they decided to build a new state of the art waiting room.  The total cost of materials to build the new waiting room was $750,000.  It cost another $220,000 for the cost to put it into service including architect fees, Inspection fees and the cost of labor. The hospital estimates the useful life to be 20 years.  The estimated salvage value at the end of 20 years is $20,000. 

 

Calculate the depreciation expense for the first 3 years using straight line, Double Declining Balance and Sum of the year digits. (show your work)

                        Straight Line                                        DDB                                         Sum of Ys Digits          

Year 1

Year 2       

Year 3       

Accum = 

 

Show your work

(Straight line calculation) (Cost-Salvage value)/useful life

 

 

(DDB Calculation) Formula = Cost × (2 / Useful Life)

 

 

(Sum of the years' digits calculation) (Cost - Salvage Value) × (Useful life / Sum of the digits)

 

 

After 3 full years there was a fire that completely destroyed the new waiting room. Thankfully they were insured for full replacement value of $970,000

 

Book the journal entry (for the hospital) for the receipt of cash from the insurance company and the complete write off of the book value of the reception area assuming the hospital used double declining balance.

 

 

Would the gain or loss be greater or smaller if the hospital had used straight line instead of double declining balance? Why?

Answer rating: 100% (QA)

To calculate the depreciation expense for the first 3 years using straightline double declining balance DDB and sum of the years digits methods we first need to find the annual depreciation for each m... View the full answer