Question

New lithographic equipment, acquired at a cost of $300 000 on March 1 at the beginning data year ha d e ve year and an inter v alue of 300.000 The manag e d normation regarding the chiedolaemative methods on the amount of depreciation expense each year In the list week of the theat, on March 4, the equipment was sold for $135,000 Required: 1 Determine the annuwdepreciation expense for each of the estimated five years of use the accumulated depreciation of the end of each year and the book of the equipment at the end of each year by the method and the double-decin balance method 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 accounts 3 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 accounts

Answer 1

1)

Straight line method:

Depreciation expense = [Cost -residual value ]/useful life

                = [800000-90000]/5

                = 142000

Year	Depreciation expense	Accumulated depreciation	Book value at end
1	142000	142000	800000-142000= 658000
2	142000	142000+142000= 284000	658000-142000= 516000
3	142000	284000+142000= 426000	658000-142000= 374000
4	142000	426000+142000= 568000	374000-142000= 232000
5	142000	568000+142000= 710000	232000-142000= 90000

B)Double declining depreciation method :

Depreciation rate= 2/ useful life

             = 2/5

             = .40 or 40%

Year	Depreciation expense	Accumulated depreciation	Book value at end
1	800000*40%= 320000	320000	800000-320000= 480000
2	480000*40%= 192000	320000+192000= 512000	480000-192000= 288000
3	288000*40%= 115200	512000+115200= 627200	288000-115200= 172800
4	172800*40%= 69120	627200+69120= 696320	172800-69120= 103680
5	103680-90000= 13680	696320+13680= 710000	90000

In year 5,Depreciation expense = 103680 * 40%= 41472 which means book value at end of year 5 = 103680-41472 = 62208 however salvage value required at year 5 =90000 ,thus depreciation for year 5 is restricted .

2)

Date	Account title	Debit	credit
March 4 of year 5	cash	135000
	Accumulated depreciation -equipment	696320
	Equipment		800000
	gain on sale of equipment		31320

3)

Date	Account title	Debit	credit
March 4 of year 5	cash	88750
	Accumulated depreciation -equipment	696320
	loss on sale of equipment	14930
	Equipment		800000