Question

1.a

New lithographic equipment, acquired at a cost of $843,200 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $94,860. 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, on March 4, the equipment was sold for $140,199.

	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. Round your answers to the nearest whole dollar.
2.	Journalize the entry to record the sale assuming the manager chose the double-declining-balance method. Refer to the Chart of Accounts for exact wording of account titles.
3.	Journalize the entry to record the sale in (2), assuming that the equipment was sold for $93,349 instead of $140,199. Refer to the Chart of Accounts for exact wording of account titles.

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. Round your answers to the nearest whole dollar. Enter all amounts as a positive numbers.

a. Straight-line method

		Accumulated Depreciation,
Year	Depreciation Expense	End of Year	Book Value, End of Year
1
2
3
4
5

b. Double-declining-balance method

		Accumulated Depreciation,
Year	Depreciation Expense	End of Year	Book Value, End of Year
1
2
3
4
5

1.b

The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.

Year 1
Jan. 4.	Purchased a used delivery truck for $27,680, paying cash.
Nov. 2.	Paid garage $725 for miscellaneous repairs to the truck.
Dec. 31.	Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $4,900 for the truck.
Year 2
Jan. 6.	Purchased a new truck for $49,850, paying cash.
Apr. 1.	Sold the used truck for $15,050. (Record depreciation to date in Year 2 for the truck.)
June 11.	Paid garage $450 for miscellaneous repairs to the truck.
Dec. 31.	Record depreciation for the new truck. It has an estimated residual value of $9,185 and an estimated life of five years.
Year 3
July 1.	Purchased a new truck for $53,640, paying cash.
Oct. 2.	Sold the truck purchased January 6, Year 2, for $17,607. (Record depreciation to date for Year 3 for the truck.)
Dec. 31.	Recorded depreciation on the remaining truck. It has an estimated residual value of $12,345 and an estimated useful life of eight years.

Journalize the transactions and the adjusting entries. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

1) a) Straight Line Depreciation:-

Depreciation per year = (Cost - Residual value)/Useful Life in yrs

= ($843,200 - $94,860)/5 yrs = $149,668 per year

Year	Book Value, beg of year or Cost (A)	Depreciation Expense (B)	Accumulated Depreciation, End of Year	Book Value, End of Year (A-B)
1	843,200	149,668	149,668	693,532
2	693,532	149,668	299,336	543,864
3	543,864	149,668	449,004	394,196
4	394,196	149,668	598,672	244,528
5	244,528	149,668	748,340	94,860

b. Double-declining-balance method

Double declining depreciation rate = (1/Useful life)*2*100

= (1/5 yrs)*2*100 = 40%

As equipment is sold in the first week of fifth year, the book value, accumulated depreciation at the end of year will be zero and depreciation expense for year 5 will also be zero.

2 & 3) Journal entry to record the sale in fifth year is shown as follows:-

Journal Entries (Amounts in $)

No	Account Titles and Explanations	Debit	Credit
2	Cash	140,199
	Accumulated Depreciation-Equipment	733,921
	Gain on Sale of Equipment (140,199+733,921-843,200)		30,920
	Equipment		843,200
	(To record the sale of equipment)
3	Cash	93,349
	Accumulated Depreciation-Equipment	733,921
	Loss on Sale of Equipment (843,200-140,199+733,921)	15,930
	Equipment		843,200
	(To record the sale of equipment)