Question

(a) James Company bought equipment for $460,000 on 22 February 20Y1. The machine had an estimated residual value of $60,000, and had estimated useful life of 10 years, or had an estimated operation output of 100,000 hours. The year-end date of the company is 31 December. Calculate the depreciation on the equipment in these two years using the following methods. 20Y1 20Y2 (i) Straight-line (using half-year convention) (ii) 200%-declining-balance (using full-year depreciation in the first year) (iii) Units-of-output method (hours of operation: 10,000 in 20Y1; 12,000 in 20Y2) (b) Solar Company purchased equipment for $27,000 on 1 July 20X1. The Company depreciated the equipment over a five-year life by the 150%-declining-balance method on monthly basis and its residual value was $3.000. Until the end of the second year at 31 December 20X2, the Company sold the equipment for $12,500. Assuming the Company adjusts its accounts annually, prepare the necessary journal entries required to update the depreciation for the second year and to dispose the said equipment.

Answer 1

a) James Company bought equipment for $460,000 on 22 February 20Y1. The machine had an estimated residual value of $60,000, and had estimated useful life of 10 years, or had an estimated operation output of 100,000 hours. The year-end date of the company is 31 December. Calculate the depreciation on the equipment in these two years using the following methods. 20Y1 20Y2 (i) Straight-line (using half-year convention) (ii) 200%-declining-balance (using full-year depreciation in the first year) (iii) Units-of-output method (hours of operation: 10,000 in 20Y1; 12,000 in 20Y2) (
	20Y1	20Y2
(i) Straight-line (using half-year convention) = (Cost - Residual value)/useful life	20000	40000
(ii) 200%-declining-balance (using full-year depreciation in the first year) = 1/useful life x 2 x book value	92000	73600
(iii) Units-of-output method (hours of operation: 10,000 in 20Y1; 12,000 in 20Y2 = (Cost of Asset - Residual Value) / Total Units of Output	40000	48000
(b) Solar Company purchased equipment for $27,000 on 1 July 20X1. The Company depreciated the equipment over a five-year life by the 150%-declining-balance method on monthly basis and its residual value was $3.000. Until the end of the second year at 31 December 20X2, the Company sold the equipment for $12,500. Assuming the Company adjusts its accounts annually, prepare the necessary journal entries required to update the depreciation for the second year and to dispose the said equipment.
Year	Net book value, beginning of year	Double-declining balance depreciation computed as 1.5 × SL rate × beginning NBV	Net book value, end of year
1-Jul-01	$27,000	$675	$26,325
1-Aug-01	26,325	$658	$25,667
1-Sep-01	25,667	$642	$25,025
1-Oct-01	25,025	$626	$24,400
1-Nov-01	24,400	$610	$23,790
1-Dec-01	23,790	$595	$23,195
1-Jan-02	23,195	$580	$22,615
1-Feb-02	22,615	$565	$22,050
1-Mar-02	22,050	$551	$21,498
1-Apr-02	21,498	$537	$20,961
1-May-02	20,961	$524	$20,437
1-Jun-02	20,437	$511	$19,926
1-Jul-02	19,926	$498	$19,428
1-Aug-02	19,428	$486	$18,942
1-Sep-02	18,942	$474	$18,469
1-Oct-02	18,469	$462	$18,007
1-Nov-02	18,007	$450	$17,557
1-Dec-02	17,557	$439	$17,118
Total depreciation		$9,882
Account Titles	Debit	Credit
Year 2
Depreciation Expenses	$6,077
Accumulated Depreciation		$6,077
Cash	$ 12,500.00
Accumulated Depreciation	$   9,882.24
Loss on sale of Equipment (9882.24	$   4,617.76
Equipment		$ 27,000.00

А 4 (1) Straight-line (using half-year convention) = (Cost - Residual value)/useful life =(460000-60000/10*6/12 = ( 460000-60000)/10 5 (ii) 200%-declining-balance (using full-year depreciation in the first year) = 1/ useful life x 2 x book value =1/10*2*460000 =(460000-B5)*1/10*2 6 (iii) Units-of-output method (hours of operation: 10,000 in 20Y1; 12,000 in 20Y2 = (Cost of Asset - Residual Value) / Total Units of Output =( 460000-60000/100000*1 =( 460000-60000/100000*1 8 (b) Solar Company purchased equipment for $27,000 on 1 July 20X1. The Company depreciated the equipment over a five-year 10 Year 11 37073 12 37104 13 37135 14 37165 15 37196 16 37226 17 37257 18 37288 19 37316 20 37347 21 37377 22 37408 23 37438 37469 37500 26 37530 27 37561 28 37591 29 Total depreciation Net book value, beginning a Double-declining balance de Net book value, end of yez 27000 =B111.5 1/5 1/12 =B11-C11 =D11 =B12*1.51/5 1/12 =B12-C12 =D12 =B131.5 1/5 1/12 =B13-C13 =D13 =B14 1.5 1/5 1/12 =B14-C14 =D14 =B15 1.5 1/5 1/12 =B15-C15 =D15 =B16*1.51/5 1/12 =B16-C16 =D16 =B17*1.5*1/5 1/12 =B17-C17 =D17 =B18*1.5*1/5 1/12 =B18-C18 =D18 =B19*1.5*1/5*1/12 =B19-C19 =B20*1.5*1/5*1/12 =B20-C20 =D20 =B211.5 1/5 1/12 =B21-C21 =D21 =B22*1.5*1/5 1/12 =B22-C22 =D22 =B23 1.5 1/5 1/12 =B23-C23 =D23 =B24*1.51/5 1/12 =B24-024 =D24 =B25*1.5*1/5 1/12 =B25-C25 =D25 =B26*1.5*1/5*1/12 =B26-C26 =D26 =B27*1.5*1/5*1/12 =B27-027 =D27 =B28*1.5*1/5*1/12 =B28-C28 =SUM(C11C28) =D19 25 Debit Credit 31 Account Titles 32 Year 2 33 Depreciation Expenses Accumulated Depreciation =SUM(C17:C28) =B33 36 Cash 37 Accumulated Depreciation 38 Loss on sale of Equipment (9882.24 Equipment 12500 =C29 =C39-B36-B37 27000