Unit 3
Acquisitions and Payment
Balls and Bats, Inc. purchased equipment on January 1, 2005, at a cost of $100,000. The estimated useful life is 4 years with a salvage value of $10,000.
The purchase of long-lived assets are daily, quarterly and yearly occurrences for many corporations. The cost allocation of the asset is shown through the method of depreciation a company uses. The method a company chooses to incorporate should be one that most effectively matches expenses with the revenues produced. The method that most select is that of straight-line depreciation, which "spreads the depreciable value evenly over the useful life of an asset." (Horngren, Sundem, Elliott, & Philbrick 2006, p.342) Depreciation schedules reflect how much depreciation will be allocated for each year of the assets useful life. In order to calculate depreciation expense we take the cost of the acquisition minus the estimated residual value divided by the years of estimated useful life. The depreciation schedule using the straight-line method for Balls and Bats, Inc. would be as follows:
Total Acquisition cost= $100,000
Salvage value= $10,000
Estimated useful life= 4 years
Depreciation expense= 100,000 - 10,000 = 22,500
4
D= $22,500 per year
Single-line Depreciation
Balances at End of Year
1 2 3 4
Acquisition cost of
Equipment $ 10 ...