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

Answer -

Step - (1) - Information Given -

Equipment cost = $562500.

Estimated useful life = 5 years.

Estimated residual value = $48400.

.

Step - (2) - Calculation of Annual depreciation expense, Accumulated depreciation and the Book value of the Equipment at the end of each year -

Straight-line depreciation = (Cost of Equipment - Residual value) / Estimated useful life

= ($562500 - $48400) / 5 years

= $102820

Year	Depreciation Expense ($)	Accumulated Depreciation, End of Year ($)	Book Value, End of Year ($)
1	102820	102820	459680 [562500 - 102820]
2	102820	205640 [102820 + 102820]	356860 [459680 - 102820]
3	102820	308460 [205640 + 102820]	254040 [356860​​​​​​​ - 102820]
4	102820	411280 [308460 + 102820]	151220​​​​​​​ [254040 - 102820]
5	102820	514100 [411280 + 102820]	48400 [151220​​​​​​​ - 102820]