New lithographic equipment, acquired at a cost of $656,250 at the beginning of a

Question

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.

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:

Explanation / Answer

Cost $656,250 Salvage Value $56,400 SLM rate 20.00% DDB rate 40.00% a. Straight Line Method Year Depreciation Expense Accumulated Depreciation Book Value 1 $119,970 $119,970 $536,280 2 $119,970 $239,940 $416,310 3 $119,970 $359,910 $296,340 4 $119,970 $479,880 $176,370 5 $119,970 $599,850 $56,400 b. Double-declining balance Year Depreciation Expense Accumulated Depreciation Book Value 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 S.No. Accounts Titles and Explanation Debit Credit 2 Cash $96,100.00 Accumulated Depreciation-Equipment $599,850.00 Equipment $656,250.00 Gain on sale of Equipment $39,700.00 3 Cash $82,500.00 Accumulated Depreciation-Equipment $599,850.00 Equipment $656,250.00 Gain on sale of Equipment $26,100.00

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