Depreciation methods

Question 1

Straight-line-method:

Answer 1

equal division of depreciation during period

(Acquisition Cost – Residual Value ) / Life

Question 2

Units-of-Production Method:

Answer 2

Depreciation is determined as a function of the number of units the asset produces

Depreciation per unit =
(Acquisition Cost – Residual Value)/(Total Number of Units)

Annual Depreciation =
Depreciation per Unit x Units Produced in Current Year

Question 3

Accelerated Depreciation Method:

Answer 3

Higher amount of depreciation is recorded in the early years and a lower amount in the later years

Double-declining-balance method:
Depreciation is recorded at twice
the straight - line rate (2 x %),
AND use the new reduced value in Balance sheet each year

Question 4

Book Value:

Answer 4

acquisition cost minus total amount of accumulated depreciation:
Acquisition Cost – Accumulated Depreciation

Question 5

Bad debt:

1. Direct write-off method:

Answer 5

invoice is written off as uncollectible

We already had:
Accounts receivable debited
Sales revenue credited

You do:
Bad debts Expense debit
Accounts receivable credit.

Question 6

Bad debt:

2. Allowance method

Answer 6

Bad Debt Expense is debited,
Allowance for Doubtful Accounts (asset) credited

(The allowance is a contra account = paired with = accounts receivable account. – to reduce it)

Allowance for Doubtful Accounts debited,
Accounts Receivable credited

Question 7

For journal entries and balance sheet adjustments regarding bad debts

Answer 7

Ending Allowance=

beginning allowance - write off + bad debt expense