Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acq

Question

Depreciation by Two Methods; Sale of Fixed Asset

New lithographic equipment, acquired at a cost of $656,250 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $56,400. 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, the equipment was sold for $96,100.

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

b. Double-declining-balance method

2. Journalize the entry to record the sale, assuming double-declining balance method is used. If an amount box does not require an entry, leave it blank.

3. Journalize the entry to record the sale, assuming that the equipment was sold for $82,500 instead of $96,100. If an amount box does not require an entry, leave it blank.

Explanation / Answer

1(a) Depreciation as per staright Line Method $ Asset cost                   656,250 Residual Value 56400 Depreication per year = (656250-56400)/5 = $ 119970 Assuming that not Sale has been placed in the Fifth year Year Depreiciation Exp Accumulated Dep Book value at the end of the year 1 119970 119970                    536,280 2 119970 239940                    416,310 3 119970 359910                    296,340 4 119970 479880                    176,370 5 119970 599850                      56,400 * If assuming sales happen in the fifth year as given than value in fifth year will be Year Depreiciation Exp Accumulated Dep Book value at the end of the year 5                        2,307                                 -                                  -   Depreciation for one week consider as expenses in fifth year 1(b) Depreciation as per Double Decling Method Assuming that not Sale has been placed in the Fifth year Year Depreiciation Exp Accumulated Dep Book value at the end of the year 1                   262,500                      262,500                    393,750 2                   157,500                      420,000                    236,250 3                      94,500                      514,500                    141,750 4                      56,700                      571,200                      85,050 5                      28,650                      599,850                      56,400 * If assuming sales happen in the fifth year as given than value in fifth year will be Year Depreiciation Exp Accumulated Dep Book value at the end of the year 5                            551                                 -                                  -   Depreciation for one week consider as expenses in fifth year 2. Journal Entry for recording of Sales as double declining method has been used Debit Credit $ $ Bank A/c                      96,100 Accumulated Dep                   571,751 (571200+551) To Machinery                      656,250 To Profit on Sale of Machinery                        11,601 3. Journal Entry for recording of Sales as double declining method has been used Debit Credit $ $ Bank A/c                      82,500 Accumulated Dep                   571,751 (571200+551) Loss on Sale of Machiery                        1,999 To Machinery                      656,250

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