New lithographic equipment, acquired at a cost of $656,250 at the beginning of a
ID: 2500512 • Letter: N
Question
New lithographic equipment, acquired at a cost of $656,250 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $56,400. 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 $96,100.
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
Accumulate Depreciation, end of year:
Yr 1 -
Yr 2 -
Yr 3 -
Yr 4 -
Yr 5 -
Book Value, end of year:
Yr 1 -
Yr 2 -
Yr 3 -
Yr 4 -
Yr 5 -
b. Double-Declining Balance Method
Depreciation Expense
Yr 1 -
Yr 2 -
Yr 3 -
Yr 4 -
Yr 5 -
Accumulate Depreciation, end of year:
Yr 1 -
Yr 2 -
Yr 3 -
Yr 4 -
Yr 5 -
Book Value, end of year:
Yr 1 -
Yr 2 -
Yr 3 -
Yr 4 -
Yr 5 -
Explanation / Answer
Answer:1(a) Straight-line method:
As the Asset is sold at the start of the fifth year for 96100.
Under straightline method.
Gain/(loss) on sale of asset = Sale value - Book value of the asset
= $96100-$119,970 = ($23870)
Loss is $23,870.
Under Double decling balance method.
Gain/(loss) on sale of asset = Sale value - Book value of the asset
= $96100-$85050 = 11050
Gain is $11050
Answer:1(a) Straight-line method:
Year Depreciation Expense Accumulated Depreciation ,End of the year Book value,end of the years 0 0 0 599850 1 119970 119970 479880 2 119970 239940 359910 3 119970 359910 239940 4 119970 479880 119970 5 119970 599850 0 *[(656250-56400)/5]=$119970 599850 (b) Double-declining-balance method: Year Explanation Depreciation Expense Accumulated Depreciation ,End of the year Book value,end of the years 656250 1 (656250/5)*2 262500 262500 393750 2 (393750/5)*2 157500 420000 236250 3 (326250/5)*2 94500 514500 141750 4 (195750/5)*2 56700 571200 85050 5 (117450/5)*2 34020 605220 51030