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New lithographic equipment, acquired at a cost of $800,000 on March 1 of Year 1 (beginning...

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.
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a. Calculation of depreciation as per straight line method: Book value of asset Residhal value of asset Life of asset Straightline depreciation - $800,000-$90,00 5 years - $142,000 Depreciation will be same for all the future years. Year Depreciation Accumulated Book value, end of $142,000 $142,000 142,000 S142.000 depreciation, end of year $142,000 $284,000 $426,000 568,000 $638,000 S516,000 374,000 S232.000 Depreciation for fifth year will not be calculated because the equipment is sold in the beginning of fifth year Book value at the end of the year is calculated to show the effect of depreciation Otherwise, if accumulated depreciation account is prepared then for the presentation purpose the book value of the asset is not changed b. Calculation of depreciation as per double-declining method Straight line depreciation Book value of asset Residual value of asset Straight-line depreciaticn rate- $142,000 S800,000 90,000 $142,000 710,000 20% Double-declining deprecintion rate Straight-line depreciation ratex 2 =20% × 2 40% Accumulated depreciation, end of year Year Depreciation Book value, end of S480,000 S288,000 $172,800 03,680 S320,000 S320,000 S512.000 $627,200 696 $800,000 × 4 $192.000 480,000x $115,200 ($288,000 × 40%) 69,120 172.800 40%) Depreciation for fifth year will not be calculated because the equipment is sold in the beginning of fifth year Book value t the end of the year is calculated to show the effect of depreciation. Otherwise, if accumulated depreciation account is prepared then for the presentation purpose the book value of the asset is not changed 2. Journal entry to record the sale is given below Date Account and explanation Debit (S)ri (S) Cash 135,000 696,320 Accumulated d 800,000 31,320 nent Profit on sale of o record sale of ent 3. Joumal entry to record the sale is given below Date Account and explanation Debit (S Credit (S) 88,750 696,320 Accumulated d Loss on sale of ent 800,000 o record sale of ent

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