Depreciation Expense Exercises 


Eminem Corporation was founded in August. During its first few months the company spent the following amounts to acquire property, plant, and equipment: $95,000 for land, $5,000,000 for buildings, $3,000,000 for equipment, and $72,000 for delivery trucks. The land was expected to have an unlimited life and a residual value of at least $95,000. The buildings were expected to have a 40-year life and a residual value of $1,000,000. The equipment was expected to have a 10-year life and a residual value of $400,000. The delivery trucks were expected to have a 5-year life and a residual value of $7,000.

1. Calculate the total buildings depreciation expense the Eminem Corporation will record over the 40-year life of the buildings.  

Buildings cost
$5,000,000
Residual value
$1,000,000
Total building depreciation expense
$4,000,000

     
2. Calculate the total equipment depreciation expense the Eminem Corporation will record over the 10-year life of the equipment.  

Equipment cost
$3,000,000
Residual value
$400,000
Total equipment depreciation expense
$2,600,000


3. Calculate the total delivery trucks depreciation expense the Eminem Corporation will record over the 5-year life of the delivery trucks.  

Delivery trucks cost
$72,000
Residual value
$7,000
Total delivery trucks depreciation expense
$65,000

 
4. Calculate the total land depreciation expense the Eminem Corporation will record over the life of the land.

$0. The land would not be depreciated because it is not expected to decrease in value. Note that its disposal value is expected to be at least as much as its original cost.
 
 
Straight-line Depreciation


Waler Corporation’s fiscal year ends June 30. On July 1, the company paid $40,000 for new office equipment. The equipment had an estimated useful life of ten years and a residual value of $6,000. The company uses the straight-line depreciation method for all office equipment.

1. Calculate the total depreciation expense the Waler  Corporation will record over the 10-year life of the office equipment.  

Office equipment cost
$40,000
Residual value
$6,000
Total office equipment depreciation expense
$34,000


2. Calculate the depreciation expense for each of the ten years of the office equipment’s useful life.

 $34,000 / 10 years = $3,400 per year straight-line depreciation expense.
 
3. Calculate the balance in the accumulated depreciation account on each June 30 over the office equipment’s 10-year useful life.  

Date

Depreciation Expense

Accumulated Depreciation

June 30, Year 1

$3,400

$3,400

June 30, Year 2

$3,400

$6,800

June 30, Year 3

$3,400

$10,200

June 30, Year 4

$3,400

$13,600

June 30, Year 5

$3,400

$17,000

June 30, Year 6

$3,400

$20,400

June 30, Year 7

$3,400

$23,800

June 30, Year 8

$3,400

$27,200

June 30, Year 9

$3,400

$30,600

June 30, Year 10

$3,400

$34,000

 
4. Prepare the journal entry necessary to record the office equipment’s depreciation expense for the first year ended June 30. Before you prepare the journal entry, determine the transaction's effects on the company's resources and sources of resources.  

Assets

=

Liabilities

+

Stockholders' Equity

Accumulated Depreciation

          Depreciation Expense,

($3,400)

=

 

 

 

 

( $3,400)

 
5. Assume the Waler Corporation’s fiscal year ends on December 31 instead of June 30. Prepare the journal entry necessary to record the office equipment’s depreciation expense for the first six months ended December 31. Before you prepare the journal entry, determine the transaction's effects on the company's resources and sources of resources.

By December 31, the office equipment would have been used for six months, July through December. Since the yearly depreciation is $3,400, the depreciation for six months would be $1,700.
 

Assets

=

Liabilities

+

Stockholders' Equity

Accumulated Depreciation

          Depreciation Expense,

($1,700)

=

 

 

 

 

($1,700)

 
Double-declining-balance Depreciation


Tripp Corporation’s fiscal year ends September 30. On October 1, the company paid $50,000 for new office equipment. The equipment had an estimated useful life of eight years and a residual value of $7,000. The company uses the double-declining-balance depreciation method for all office equipment.

1. Calculate the total depreciation expense the Tripp Corporation will record over the 8-year life of the office equipment.  

Office equipment cost
$50,000
Residual value
$7,000
Total office equipment depreciation expense
$43,000

2. Calculate the depreciation expense for each of the eight years of the office equipment’s useful life.

The double-declining-balance depreciation rate = 2 x (1/8) = 2/8 = 1/4 = 25%.  

Year

Depreciation Expense

1

$50,000 x .25 = $12,500.00

2

($50,000 - $12,500 = $37,500) x .25 = $9,375.00

3

($50,000 - $21,875 = $28,125) x .25 = $7,031.25

4

($50,000 - $28,906.25 = $21,093.75) x .25 = $5,273.44

5

($50,000 - $34,179.69 = $15,820.31) x .25 = $3,955.08

6

($50,000 - $38,134.77 = $11,865.23) x .25 = $2,966.31

7

$50,000 - $41,101.08 = $1,898.92

8

$0

Total

$43,000

Note: Year 7 depreciation expense is limited to $1,898.92 because total depreciation expense cannot exceed $43,000. On a pure math basis, the expense would have been: ($50,000 - $41,101.08 = $8,898.92) x .25 = $2,224.73. However, since the book value has to equal the salvage value at the end of the useful life, you must 'plug' or work backwards to determine expense during the last year, and sometimes the last two years if the salvage value is large.
 
3. Calculate the balance in the accumulated depreciation account on each September 30 over the office equipment’s 8-year useful life.
 

Date

Depreciation Expense

Accumulated Depreciation
Sept. 30, Year 1

$12,500.00

$12,500.00
Sept. 30, Year 2

$9,375.00

$21,875.00
Sept. 30, Year 3

$7,031.25

$28,906.25
Sept. 30, Year 4

$5,273.44

$34,179.69
Sept. 30, Year 5

$3,955.08

$38,134.77
Sept. 30, Year 6

$2,966.31

$41,101.08
Sept. 30, Year 7

$1,898.92

$43,000
Sept. 30, Year 8

$0.00

$43,000

 
4. Prepare the journal entry necessary to record the office equipment’s depreciation expense for the first year ended September 30. Before you prepare the journal entry, determine the transaction's effects on the company's resources and sources of resources.
 

Assets

=

Liabilities

+

Stockholders' Equity

Accumulated Depreciation           Depreciation Expense

($12,500)

=

 

 

 

 

($12,500)