New lithographic equipment, acquired at a cost of $940,000 at the beginning of a
ID: 2488451 • Letter: N
Question
New lithographic equipment, acquired at a cost of $940,000 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $105,750. 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 $151,924.
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 (a) the straight-line method and (b) the double declining- balance method. Round your answers to the nearest whole dollar. 2. On January 1, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles. 3. On January 1, journalize the entry to record the sale, assuming that the equipment was sold for $105,874 instead of $151,924. Refer to the Chart of Accounts for exact wording of account titles.Explanation / Answer
Answer:1
a) Straight- line method :
According to this method, Depreciation is calculated as:
(Original cost of the Fixed asset - Residual value)/ Estimated useful life of the fixed asset.
Depreciation Expense for New lithographic equipment = (940000 - 105750)/5 = $166850 each year
New book value = End of the year book value - Depreciation expense for that year
b) Double declining balance method:
According to this method, depreciation is calculated as:
(200% * Straight - line depreciation rate ) * Book value at the end of the year
Straight- line depreciation rate = Depreciation expense each year / Total amount to be depreciated
=166850 / (940000 - 105750)
= 166850 / 834250 = 20%
Therefore, Depreciation expense = (200% of 20%) * Book value at the end of the year
= 40% of the Book value at the end of the year
New book value = End of the year book value - Depreciation expense for that year
Note: Since we cannot depreciate more than (purchase value - residual value ), therefore, depreciation for year 5 is calculated as:
834250 Total amount to be depreciated - 818176 accumulated depreciation for four years = 16074
Answer:2
Cash Dr. 151924
Accumulated depreciation, Equipment Dr.818176
To gain on sale of equipment.........................................30100
To equipment..................................................................940000
Calculation of Gain on sale:
Cash received = 151924
Less: Book value at the time of sale (940000 - 818176) = (121824)
Gain on sale of equipment = 30100
Answer:3
Cash Dr. 105874
Accumulated depreciation, Equipment Dr.818176
Loss on sale of equipment Dr. 15950
To Equipment..................................................................940000
Calculation of Loss on sale:
Cash received = 105874
Less: Book value at the time of sale (940000 - 818176) = (121824)
Loss on sale of equipment = 15950
Year Depreciation expense Accumulated depreciation End of year book value New book value 1 166850 166850 940000 773150 2 166850 333700 773150 606300 3 166850 500550 606300 439450 4 166850 667400 439450 272600 5 166850 834250 272600 105750Related Questions
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