On January 2, 2021, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $55,000. The expenditures made to acquire the asset were as follows: Purchase price $236,500
Freight charges 8,000
Installation charges 11,500

Jackson's policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life.

Required:
Calculate depreciation for each year of the asset's eight-year life.

2021

Depreciation expense  = $64,000

2022

Depreciation expense  = $48,000

2023

Depreciation expense = $52,000

2024

Depreciation expense  = $51,000

2025

Depreciation expense  = $10,250

2026

Depreciation expense = $10,250

2027

Depreciation expense = $10,250

2028

Depreciation expense = $10,250

Explanation:

Depreciation Charge using the double-declining-balance (DDB) method is determined as follows :

Depreciation Charge = 2 x SLDP x BVSLDP

where,

SLDP = 100 ÷ Number of useful life

          = 100 ÷ 8

           = 12.5 %

and

BVSLDP = cost (in first year) and Book Value thereafter.

therefore,

2021

Depreciation expense = 2 x 12.5 % x $256,000 = $64,000

2022

Depreciation expense = 2 x 12.5 % x ($256,000 - $64,000) = $48,000

2023

Depreciation expense = 2 x 12.5 % x ($256,000 - $48,000) = $52,000

2024

Depreciation expense = 2 x 12.5 % x ($256,000 - $52,000) = $51,000

Now from 2024 we have to switch to straight line method

With Straight Line Method, we charge a fixed amount of depreciation using the formula :

Depreciation expense = (Cost - Residual Value) ÷ Remaining Useful life

But since we have provided for depreciation expenses before, we have to reduce the cost by $215,000 (accumulated depreciation to date). Also we reduce the remaining useful life by the years expired to 4 years.

2025

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

2026

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

2027

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

2028

Depreciation expense = ($256,000 - $215,000) ÷ 4 = $10,250

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