New lithographic equipment, acquired at a cost of $937,500 at the beginning of a
ID: 2475200 • Letter: N
Question
New lithographic equipment, acquired at a cost of $937,500 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $80,600. 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 $137,300.
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.
Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year 1 $ $ $ 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $
Explanation / Answer
Answer:
Original Cost
$937,500
Useful Life
5 years
Salvage value
$80,600
Sale price
$137,300.
a.)Straight Line Method
Depreciation = (Cost - Residual value) / Useful life
=($9,37,500-$80,600)/5 ==$171,380 per annum
Rate=$1,71,380*100/($9,37,500-$80,600)
=20%
Year
Beginning book value
Depreciation
Accumulated Dep
End Book Value
1
$937,500
$171,380
$171,380
$766120
2
$766120
$171,380
$342760
$594740
3
$594740
$171,380
$514140
$423360
4
$423360
$171,380
$685520
$251980
5
$251980
$171,380
$856900
$80600
b).Double decling Method
Depreciation rate for double declining balance method
= Straight line depreciation rate x 200%
=20*2=40%
Year
Beginning book value
Depreciation
Accumulated Dep
End Book Value
1
$937,500
$375000
$375000
$562500
2
$562500
$225000
$600000
$337500
3
$337500
$135,000
$735000
$202500
4
$202500
$81,000
$816000
$121500
5
$121500
$40,900
$856900
$80600
Depreciation for 5th year is adjusted $40,900 is to keep book value same as salvage value.
2.Entries where disposal value is $137,300..
Cash A/c……. .Dr $137,300
Accumulated Dep A/c……..Dr $8,16,000
To Equipment $937,500
To Gain on Disposal of equipment $15,800
Entries where disposal value is $117,900..
Cash A/c…………………….Dr $137,300
Accumulated Dep A/c……..Dr $8,16,000
Loss on disposal of Asset….Dr $3,600
To Equipment $937,500
Original Cost
$937,500
Useful Life
5 years
Salvage value
$80,600
Sale price
$137,300.