Question

Equipment was acquired at the beginning of the year at a cost of \$40,500 . The equipment was depreciated using the double declining-balance method based on an estimated useful life of ten years and an estimated residual value of $790.

Equipment was acquired at the beginning of the year at a cost of $40,500. The equipment was depreciated using the double- declining-balance method based on an estimated useful life of ten years and an estimated residual value of $790. a. What was the depreciation for the first year? b. Assuming the equipment was sold at the end of year 2 for $9,970, determine the gain or loss on the sale of the equipment. $ C. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Answer 1

a) Depreciation for the first year = $40,500*20% Depreciation for the first year = $8,100 b) Book value at end of first year = $40,500 - $8,100 Book value at end of first year = $32,400 Depreciation for the second year = $32,400*20% Depreciation for the second year = $6,480 Book value at end of second year = $32,400 - $6,480 Book value at end of second year = $25,920 Sale value = $9,970 Sale value is less than the book value, hence there will be loss on sale Loss on sale of equipment = $25,920 - $9,970 Loss on sale of equipment = $15,950 c) Account Titles and Explanation Debit Credit Cash $ 9,970 Accumulated depreciation-Equipment ($8,100 + $6,480) $ 14,580 Loss on sale of Equipment $ 15,950 Equipment $ 40,500 (To record the sale of equipment)