On January 1, 2006, Mythical purchased some office equipment, paying $24,000. It is anticipated that the equipment will last 4 years and have a zero salvage value at the end of the four years.
1) Make the adjusting entry for depreciation at the end of year two using the straight-line method.
2) Make the adjusting entry at the end of year two using the double declining balance.
Assume that Mythical purchased a new copy machine, paying $10,000. It is estimated that the machine will produce 100,000 copies and then be worthless. In year two, the machine was used to make 4,000 copies. Make the adjusting entry to record depreciation expense.
To answer these questions, we need to understand the straight-line method and the double declining balance method of depreciation.
1) Straight-line Method:
In the straight-line method, the depreciation expense is calculated by evenly distributing the cost of the asset over its useful life. To calculate the annual depreciation expense, we divide the cost of the asset by its useful life.
In this case, the office equipment was purchased for $24,000 and has a useful life of 4 years. At the end of year two, we need to make the adjusting entry for depreciation.
To calculate the annual depreciation expense:
Annual Depreciation Expense = Cost of Asset / Useful Life
Annual Depreciation Expense = $24,000 / 4
Annual Depreciation Expense = $6,000
The adjusting entry for depreciation at the end of year two would be:
Depreciation Expense $6,000
Accumulated Depreciation $6,000
2) Double Declining Balance Method:
In the double declining balance method, the depreciation expense is calculated based on a fixed percentage (double the straight-line rate) applied to the net book value (cost of the asset minus accumulated depreciation) of the asset.
In this case, we need to make the adjusting entry for depreciation at the end of year two using the double declining balance method. However, we need to know the depreciation rate to calculate the depreciation expense.
The depreciation rate can be calculated using the formula:
Depreciation Rate = (1 / Useful Life) * 2
Since the office equipment has a useful life of 4 years, the depreciation rate would be:
Depreciation Rate = (1 / 4) * 2
Depreciation Rate = 0.5 or 50%
To calculate the depreciation expense using the double declining balance method:
Depreciation Expense = Net Book Value * Depreciation Rate
At the end of year two, the net book value can be calculated by subtracting the accumulated depreciation from the cost of the asset:
Net Book Value = Cost of Asset - Accumulated Depreciation
Now, let's assume that the accumulated depreciation at the end of year two using the straight-line method is $12,000 (2 years * $6,000 depreciation expense).
Net Book Value = $24,000 - $12,000
Net Book Value = $12,000
Depreciation Expense = $12,000 * 50%
Depreciation Expense = $6,000
The adjusting entry for depreciation at the end of year two using the double declining balance method would be the same as the straight-line method:
Depreciation Expense $6,000
Accumulated Depreciation $6,000
Now, let's move on to the second part of the question regarding the copy machine.
Since the machine was used to make 4,000 copies in year two and is estimated to produce 100,000 copies in total before becoming worthless, we can calculate the depreciation expense as a fraction of the total cost:
Depreciation Expense = (Copies made in year two / Total estimated copies) * Cost of machine
Depreciation Expense = (4,000 / 100,000) * $10,000
Depreciation Expense = $400
The adjusting entry to record depreciation expense for the copy machine would be:
Depreciation Expense $400
Accumulated Depreciation $400
Please note that these calculations and entries are based on the assumptions provided. Actual accounting practices and policies may vary.