New lithographic equipment, acquired at a cost of $800,000 on March 1 of Year 1
ID: 2532405 • Letter: N
Question
New lithographic equipment, acquired at a cost of $800,000 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $90,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year.
On March 4 of Year 5, the equipment was sold for $135,000.
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 (a) the straight-line method and (b) the double-declining-balance method.
a. Straight-line method
b. Double-declining-balance method
3. On March 4, journalize the entry to record the sale in (2) assuming that the equipment was sold for $88,750 instead of $135,000. Refer to the Chart of Accounts for exact wording of account titles.
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JOURNAL
ACCOUNTING EQUATION
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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 (a) the straight-line method and (b) the double-declining-balance method. 2. Journalize the entry to record the sale assuming that the manager chose the double-declining-balance method. 3. Journalize the entry to record the sale in (2) assuming that the equipment was sold for $88,750 instead of $135,000.Explanation / Answer
PART-1)
(a) the straight-line method
Year
Depreciation expense
Accumulated Depreciation
BV
1
142,000
142,000
658,000
2
142,000
254,000
516,000
3
142,000
426,000
374,000
4
142,000
568,000
222,000
5
142,000
710,000
90,000
(b) the double-declining-balance method
Year
Depreciation expense
Accumulated Depreciation
BV
1
320,000
320,000
400,000
2
112,000
512,000
200,000
3
112,000
627,200
627,000
4
172,000
696,320
103,680
5
13,680
710,000
90,000
PART-2)
Debit
Credit
Cash
135,000
Accumulated Depreciation-Equipment
696,320
Equipment
800,000
Gain on sale of Equipment
31,320
?
PART-3)
Debit
Credit
Cash
88,750
Accumulated Depreciation-Equipment
696,320
Loss on sale of Equipment
14,930
Equipment
800,000
Year
Depreciation expense
Accumulated Depreciation
BV
1
142,000
142,000
658,000
2
142,000
254,000
516,000
3
142,000
426,000
374,000
4
142,000
568,000
222,000
5
142,000
710,000
90,000