Depreciation by Two Methods; Sale of Foxed Asset New lithographic equipment, acq
ID: 2402927 • Letter: D
Question
Depreciation by Two Methods; Sale of Foxed Asset New lithographic equipment, acquired at a cost of $937,500 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $80,600. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. In the first week of the fifth year, on March 4, the equipment was sold for $137,300. Required: 1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by the following methods: a. Straight-line method Depreciation Expense Book Value, End of Year Year End of YearExplanation / Answer
Answer:
1
Depreciation under straight line method
=937500-80600 / 5 year
=171,280 depreciation each year
Accumulated
Depreciation
Depreciation,
Book Value,
year
Expense
End of Year
End of Year
1
171380
171380
766,120
2
171,380
342,760
594,740
3
171,380
514,140
423,360
4
171,380
685,520
251,980
5
171,380
856,900
80,600
_________________________________________________
2
Depreciation under DDB method
= Rate for DDB
=Straight-line rate x 2
=(100/5) x 2
=20% x2
=40%
Accumulated
Depreciation
Depreciation,
Book Value,
Expense
End of Year
End of Year
1
375000 (937500*40%)
375000
562500
2
225000 (562500*40%)
600000
337500
3
135000 (337500*40%)
735000
202500
4
81000 (202500*40%)
816000
121500
5
40900 (121500-80600)
856900
80600
_____________________________________________
3
Description
Debit $
Credit $
Cash
137300
Accumulated depreciation-equipment
816000
Equipment
937500
Gain on sale of equipment
15800
_________________________________________
Description
Debit $
Credit $
Cash
117900
Accumulated depreciation-equipment
816000
Loss on sale of equipment
3600
Equipment
937500
Accumulated
Depreciation
Depreciation,
Book Value,
year
Expense
End of Year
End of Year
1
171380
171380
766,120
2
171,380
342,760
594,740
3
171,380
514,140
423,360
4
171,380
685,520
251,980
5
171,380
856,900
80,600
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