On April 1, 2015, Mattson Industries purchased new equipment at a cost of $325,0

Question

On April 1, 2015, Mattson Industries purchased new equipment at a cost of $325,000.  The useful life of this equipment was estimated at 5 years, with a residual value of $25,000.

Compute the annual depreciation expense for each year until this equipment becomes fully depreciated under each depreciation method listed below.

a. Straight-line, with depreciation for fractional years rounded to the nearest whole month.

b. 200 percent declining-balance.

c. Assume that the equipment is sold at the end of December 2017, for $176,250 cash.  Prepare the journal entry to record the sale of the equipment under the straight-line method.

Explanation / Answer

1) Straight line (325000-25000)/5 60000 dep for 2015   = 60000*9/12 year 2015 45000 2016 60,000 2017 60,000 2018 60,000 2019 60,000 2020 15,000 2) Double declining rate 0.4 or 40% year bal Dep BV 2015 325000 97500 227500 for 9 months 2016 227,500 91000 136,500 2017 136,500 54600 81,900 2018 81,900 32760 49,140 2019 49,140 19656 29,484 2020 29,484 4,484 25,000 for three months c) Journal entry year Account titles & Explanations Debit Credit 2017 Cash 176,250 Accumulated depreciation 165,000 Gain on disposal 16,250 Equipment 325,000

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