New lithographic equipment, acquired at a cost of $562,500 at the beginning of a
ID: 2448983 • Letter: N
Question
New lithographic equipment, acquired at a cost of $562,500 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $48,400. 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 $82,400.
Depreciation by Two Methods; Sale of Flxed Asset New lithographic equipment, acquired at a cost of $562,500 at the beginning of a fiscal year, has an estimated useful life of five years and an estimaed residual value of $48,400. 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 $82,400. 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 Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year b. Double-declining-balance method Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year Hide 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.Explanation / Answer
The Depreciation calculations are gven below for the two methods:
2) Journal Entry to record the sale:
Bank A/c Dr 82400
Accumulated Depreciation A/c 493003
To Equipment A/c 562500
To Profit on sale of equipment 12903
Straight Line Method Year Depreciation Accumulated End of Year BV at the Expense Depreciation Book Value Beginning 1 102820 102820 459680 562500 2 102820 205640 356860 459680 3 102820 308460 254040 356860 4 102820 411280 151220 254040 5 8568 419848 142652 151220 Depreciation to tbe charged each year = (Original Cost - Estimated Residual Value)/Estimated life in Years (562500-48400/5) =102820 Last year depreciation to be calculated for one month under Full month convention = 102820/12 = Double declining balance method Year Depreciation Accumulated End of Year BV at the Depreciation Expense Depreciation Book Value Beginning % 1 225000 225000 337500 562500 40.00 2 135000 360000 202500 337500 40.00 3 81000 441000 121500 202500 40.00 4 48600 489600 72900 121500 40.00 5 3403 493003 69497 72900 33.61 Rate of Depreciation = twice the straight line depreciation rate on diminishing balance = 20*2 =40%