New lithographic equipment, acquired at a cost of $125,000 at the beginning of a

Question

New lithographic equipment, acquired at a cost of $125,000 at the beginning of a fiscal year, has an estimated useful life of 5 years and an estimated residual value of $10,000. The manager requested information regarding the effect of alternative methods on the manager, the declining-balance method was selected. In the first week of the fifth year, the equipment was traded in for similar equipment priced at $150,000. The trade-in allowance on teh old equipment was $20,000, cash of $30,000 was paid, and a note payable was issued for the balance.

1. Determine the annual depreciation expense for each of teh estimated 5 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 a) the straight-line method and b)the declining-balance method at twice the straight-line rate. The following columnar headings are suggested for each schedule

2. For financial reporting purposes, determine the cost of the new equipment acquired in the exchange

3. Journalize the entry to record the exchange

4. Journalize the entry to record the exchange, assuming that the trade-in allowance was $15,000 instead of $20,00

Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year

Explanation / Answer

Solution:

(A). Stright Line DepreciationMethod:

(B). Declining Balance Method

Depreciation

(C). Exchange Equipment Value:

   Asset Value = $ 1,50,000

   Less: Allowance = 20,000

Less: Cash = 30,000

= 1,00,000

  Exchange Equipment Value = $ 1,00,000

(A)1. Stright-Line Depreciation Method:

     

(B)1. Declining Balance Method:

     

(3). Journalize the entry to record the exchange:

   Asset (New) 1,25,000   

   Accumulated Depreciation 50,000

   Aset (Old) 1,00,000

Cash 30,000

Equipment 20,000   

Depreciation Year
Depreciation
Expense 2014 $23,000.00 2015 $23,000.00 2016 $23,000.00 2017 $23,000.00 2018 $23,000.00

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