ABC Company purchased a piece of equipment for $20, 000. It has a useful life of
ID: 2492363 • Letter: A
Question
ABC Company purchased a piece of equipment for $20, 000. It has a useful life of 5 years and has been depreciated using double declining balance. At the end of year 4, ABC sold the equipment for $2,000. Calculate Gain/Loss and make journal entry to record the sale. Advanced Computers. Co showed the following financial transactions during the year 2010. Make T-accounts to record these transactions, prepare a Trial Balance (fill out the Trial Balance below), then prepare a separate Financial Statement at 12/31/2010: Raised cash by selling stock for $290, 000 Purchased computer inventory of $245,000 on credit Purchased equipment of $30, 000 on credit Started using the equipment from 01/01/2010. The equipment has a useful life of 4 years and using 150% declining balance depreciation method. Borrowed $100, 000 from BOA at 01/01/2010. The loan is due in 4 years. Paid Wages for $75,000, Rent of $30, 000, Selling expenses of $20, 000 and Other admin expenses of $40, 000. Billed clients for $420, 000 of computers. The computers had cost of $200, 000. Use $100, 000 cash to buy back the Company's own stock. Paid $85,000 pan of Accounts Payable.Explanation / Answer
Answer a. Dep. Rate under Double Declining Method = 2 * 20% (Rate of Dep. Under Straight Line Method) Dep. Rate under Double Declining Method = 40% Calculation Book value of Equipment at end of Year 4 Cost of Equipment 20,000 Less: 1st Year Dep . (20000 X 40%) 8,000 Book Value at the end of Year 1 12,000 Less: 2nd Year Dep . (12000 X 40%) 4,800 Book Value at the end of Year 2 7,200 Less: 3rd Year Dep . (7200 X 40%) 2,880 Book Value at the end of Year 3 4,320 Less: 4th Year Dep . (4320 X 40%) 1,728 Book Value at the end of Year 4 2,592 Calculation of Gain / (Loss) on sale of Equipment Sales of Equipment 2,000 Book Value of Equip. at the end of Year 4 2,592 Gain / (Loss) on Sale of Equipment (592) Journal Entry Particulars Dr. Amt Cr. Amt Cash Dr. 2,000 Accumulated Dep. - Equip. Dr. 17,408 Loss on Sale of Equip. Dr. 592 To Equipment 20,000 Answer b. Cash Common Stock Beg. Bal. - 165,000 6 Beg. Bal. - 1 290,000 100,000 8 290,000 1 5 100,000 85,000 9 End. Bal. 40,000 End. Bal. 290,000 Computer Inventory Accounts Payable Beg. Bal. - Beg. Bal. - 2 245,000 200,000 7 9 85000 245,000 2 80,000 3 End. Bal. 45,000 End. Bal. 240,000 Equipment Loan - BOA Beg. Bal. - Beg. Bal. - 3 80,000 100,000 5 End. Bal. 80,000 End. Bal. 100,000 Wages Exp. Rent Exp. Beg. Bal. - Beg. Bal. - 6 75,000 6 30,000 End. Bal. 75,000 End. Bal. 30,000 Selling Exp. Other Admn. Exp. Beg. Bal. - Beg. Bal. - 6 20,000 6 40,000 End. Bal. 20,000 End. Bal. 40,000 Sales Accounts Receivables Beg. Bal. - Beg. Bal. - 420,000 7 7 420,000 End. Bal. 420,000 End. Bal. 420,000 Cost of Goods Sold Treasury Stock Beg. Bal. - Beg. Bal. - 7 200,000 8 100,000 End. Bal. 200,000 End. Bal. 100,000 Dep. Exp. Accumulated Dep. - Equip. Beg. Bal. - Beg. Bal. - 7,500 4 4 7,500 End. Bal. 7,500 End. Bal. 7,500 Dep Rate Under 150 Declining Balance = 150% X 25% = 37.50% Dep. On Equipment = 20000 X 37.50% = 7500 Advanced Computers Co. Trial Balance As on 12/31/2010 Dr. Amt. Cr. Amt. Cash 40,000 Common Stock 290,000 Computer Inventory 45,000 Accounts Payable 240,000 Equipment 80,000 Loan - BOA 100,000 Wages Exp. 75,000 Rent Exp. 30,000 Selling Exp. 20,000 Other Admn. Exp. 40,000 Sales 420,000 Accounts Receivables 420,000 Cost of Goods Sold 200,000 Treasury Stock 100,000 Dep. Exp. 7,500 Accumulated Dep. - Equip. 7,500 Total 1,057,500 1,057,500 Advanced Computers Co. Income Staement For the period ended 12/31/2010 Sales 420,000 Less: Cost of Goods Sold (200,000) Gross Margin 220,000 Less: Expenses Wages Exp. 75,000 Rent Exp. 30,000 Selling Exp. 20,000 Other Admn. Exp. 40,000 Dep. Exp. 7,500 172,500 Net Income 47,500 Advanced Computers Co. Balance Sheet As on 12/31/2010 Assets Current Assets Cash 40,000 Computer Inventory 45,000 Accounts Receivables 420,000 505,000 Fixed assets Equipment 80,000 Accumulated Dep. - Equip. (7,500) 72,500 Total Assets 577,500 Liabilities & Stockholders' Equity Liabilities Current Liabilities Accounts Payable 240,000 Other Liabilities Loan - BOA 100,000 Total Liabilities 340,000 Stockholders Equity Common Stock 290,000 Retained Earniings 47,500 Less: Treasury Stock (100,000) Total Stockholders' Equity 237,500 Total Liabilities & Stockholders' Equity 577,500