Problem 1- Depreciation Methods ABC Company purchased a new piece of equipment t

Question

Problem 1- Depreciation Methods

ABC Company purchased a new piece of equipment that cost $950,000, salvage or trade-in value to be $50,000 and planning to use this equipment for 5 years. Please calculate depreciation using (a) straight-line method and (b) double-declining method for the 5 years.

Problem 2-Journal entries

Prepare journal entries to record the following transactions.

a)      January 1, 2009                 ABC Company purchased a network computer system (#46) for $500,000. Delivery charge and installation fee totaled $35,000. The company plans to use this computer for 4 years and will have a salvage/trade-in value of $20,000. The company signed a note for this entire purchase.

b)      December 31,2009          Record straight-line depreciation on computer (#46)

c)       January 1, 2010                 ABC Company decided to sell computer (#46) for $ 250,000 cash.

d)      January 2, 2010                 Company decided to purchase a smaller computer (#47) for $65,000. Delivery charge and installation fee totaled $2,000. Company paid cash for this computer and plans to use this computer for 3 years and will have a salvage/trade-in value of $7,000

e)      December 31, 2010         Record straight-line depreciation on computer (#47)

f)       January 1, 2011                 ABC Company decides to sell computer (#47) after only one year. Machine was sold for $45,000

g)      January                                ABC Company purchased computer (#48) for $125,000 cash. No delivery charge or installation fee on this computer. Company plans to use this computer for 4 years and will have a salvage/trade-in value of $12,000

h)      December 31, 2011                         Record straight-line depreciation on computer (#48)

i)        January                ABC Company decided to trade-in computer (#48)  for a new computer (#50) Computer (#50) will be used for 3 years with a salvage/trade-in value of $7,000. No delivery or installation charge on computer (#50). The invoice for the exchange showed the following:

Price of the new computer (#50)                                                              $130,000

Trade-in allowance granted on old computer (#48)                          $75,000

Amount paid in cash for new computer (#50)                                     $55,000

No delivery charge or installation fee for new computer (#50)    ---0---

J) December 31, 2012     Record straight-line depreciation on computer (#50)

Explanation / Answer

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