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.

	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. . 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 On March 4, journalize the entry to record the sale assuming that the manager chose the double-declining-balance method. Refer to the Chart of Accounts for exact wording of account titles. 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.

Answer 1

Answer is given below with working notes

No chart of accounts given in question. please use it appropriately as per below solution

1. Straight Line method Year Depreciation Accumulated Depreciation Year 1 Year 2 Year 3 Year 4 Year 5 Total $142,000 $142,000 $142,000 $142,000 $142,000 $710,000 $142,000 $284,000 $426,000 $568,000 $710,000 Book value at end of each year $658,000 $516,000 $374,000 $232,000 $90,000 Double-declining-balance method Year Depreciation Accumulated Depreciation Year 1 Year 2 Year 3 Year 4 Year 5 Total $320,000 $192,000 $115,200 $69,120 $13,680 $710,000 $320,000 $512,000 $627,200 $696,320 $710,000 Book value at end of each year $480,000 $288,000 $172,800 $103,680 $90,000 2 Credit Journal Entry Date Journal Year 5 Bank Account March 4 Accumulated Depreciation To Gain on sale of equipment To Equipment Account (To record sale of Equipment) Debit $135,000 $696,320 $31,320 $800,000 working note: Book value end of year 4 Sale value Gain on sale of equipment $103,680 $135,000 $31,320 Credit Journal Entry Date Journal Year 5 Bank Account March 4 Accumulated Depreciation Loss on Sale of equipment To Equipment Account (To record sale of Equipment) Debit $88,750 $696,320 $14,930 $800,000 working note: Book value end of year 4 Sale value Loss on sale of equipment $103,680 $88,750 $14,930 Calculations Straight Line method Residual Cost value $800,000 $90,000 Years Yearly Depreciation $142,000 7 5 Double declining balance method Opening Year Rate Balance Year 1 $800,000 40.00% Year 2 $480,000 40.00% Year 3 $288,000 40.00% Year 4 $172,800 40.00% Year 5 $103,680 40.00% Yearly Depreciation $320,000 $192,000 $115,200 $69,120 $13,680 Closing balance $480,000 $288,000 $172,800 $103,680 $90,000 Year 5 Depreciation will be $13,680 to keep Residual value $90,000 as balance Double Declining method working number of years useful life Depreciation rate of assets (1/number of years) DDB Depreciation rate 20.00% 40.00% (20% * 2)