Riverbed Corporation purchased machinery on January 1, 2022, at a cost of $278,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $32,800. The company is considering different depreciation methods that could be used for financial reporting purposes. Required:
Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate.

a. Under straight-line method, annual depreciation expenses are as follows:

Year         Annual depreciation expense ($)

2022                          61,300

2023                          61,300

2024                          61,300

2025                          61,300

b.  Under the declining-balance method using double the straight-line rate, annual depreciation expenses are as follows:

Year         Annual depreciation expense ($)

2022                            139,000

2023                             69,500

2024                             34,750

2025                               1,950

Explanation:

a. Prepare a separate depreciation schedule for the machinery using the straight-line method.

Note: See part a of the attached excel file for the depreciation schedule for Straight-line method.

In the attached excel file, the depreciation rate used for the Straight-line method is calculated as follows:

Straight line depreciation rate = 1 / Estimated useful life = 1 / 4 = 0.25, or 25%

From part a of the attached excel file, we have:

Year         Annual depreciation expense ($)

2022                          61,300

2023                          61,300

2024                          61,300

2025                          61,300

b. Prepare a separate depreciation schedule for the machinery using the declining-balance method using double the straight-line rate.

Note: See part b of the attached excel file for the depreciation schedule for double-declining-balance method.

In the attached excel file, the depreciation rate used for the Double declining-balance method is calculated as follows:

Double-declining depreciation rate = Straight line depreciation rate * 2 = 25% * 2 = 50%

From part b of the attached excel file, we have:

Year         Annual depreciation expense ($)

2022                            139,000

2023                             69,500

2024                             34,750

2025                               1,950

Note:

Under this double-declining-balance method, the depreciation expenses for 2025 is calculated by deducting the salvage value of $32,800 from the 2025 Beginning depreciable amount (i.e. $34,750 - $32,800 = $1,950). The residual value of $32,800 therefore represents the book value on December 31, 2025.

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