Question

Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of $562,500 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 $48,400. 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 $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 Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year X X X X b. Double-declining-balance method Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year Year

Answer 1

Correct Answer:

Straight line method:

Year	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$        1,02,820.00	$      4,59,680.00	$   1,02,820.00
2	$        1,02,820.00	$      3,56,860.00	$   2,05,640.00
3	$        1,02,820.00	$      2,54,040.00	$   3,08,460.00
4	$        1,02,820.00	$      1,51,220.00	$   4,11,280.00
5	$        1,02,820.00	$         48,400.00	$   5,14,100.00

Working:

(Straight Line Method)
A	Cost	$        5,62,500.00
B	Residual Value	$            48,400.00
C=A - B	Depreciable base	$        5,14,100.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$        1,02,820.00

Double declining method:

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$    5,62,500.00	40.00%	$      2,25,000.00	$   3,37,500.00	$     2,25,000.00
2	$    3,37,500.00	40.00%	$      1,35,000.00	$   2,02,500.00	$     3,60,000.00
3	$    2,02,500.00	40.00%	$         81,000.00	$   1,21,500.00	$     4,41,000.00
4	$    1,21,500.00	40.00%	$         48,600.00	$       72,900.00	$     4,89,600.00
5	$       72,900.00	$72,900 - $ 48400 (This is done to prevent the salvage value going below $ 48,400)	$         24,500.00	$       48,400.00	$     5,14,100.00

Working:

Bus 2 (Double declining method)
A	Cost	$        5,62,500.00
B	Residual Value	$            48,400.00
C=A - B	Depreciable base	$        5,14,100.00
D	Life [in years]	5 Years
E=C/D	Annual SLM depreciation	$        1,02,820.00
F=E/C	SLM Rate	20.000%
G=F x 2	DDB Rate	40.000%

Journal Entry:

Date	General Journal	Dr	Cr
04-Mar	Cash	$      82,400.00
	Accumulated Depreciation-Equipment	$ 5,14,100.00
	Equipment		$ 5,62,500.00
	Gain on sale of Equipment		$      34,000.00

End of answer.

Please give a thumbs-up, it will be highly appreciated.

Thanks.