Question

Equipment was acquired at the beginning of the year at a cost of $662,500. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 9 years and an estimated residual value of $48,430.

A.	What was the depreciation for the first year? Round your intermediate calculations to 4 decimal places. Round the depreciation for the year to the nearest whole dollar.
B.	Assuming that the equipment was sold at the end of the second year for $655,927, determine the gain or loss on the sale of the equipment.
C.	Journalize the entry on Dec. 31 to record the sale. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Calculate depreciation for first yean Depreciation expense in first year Cost x Depreciation rate = $662,500 x 22.2222% $147,222 Hence, the depreciation for first year is $147,222. b Determine gain or loss on sale of equipement. Depreciation expense in second year-Cost - Dep. Expe accumulated x Depreciation rate -($662,500-$147,222) x 22.2222% -$114,506 Accumulated dep. At the end of second year Dep. Exp in first year+ Dep. Exp in second year -$147,222+$114,506 -$261,728 Gain on sale of equipment Cash received - (Cost of equipment - Accumulated dep.) -$655,927-(662,500-$261,728) $255,155 Hence, the gain on sale of equipment is $255,155 c Journal entry on the date of sale Date Dec-31 Cash Account title and explanation bitCredit $ 655,927 Accumulated depreciation-Equipment $ 261,728 $662,500 $255,155 Equipment Gain on sale of equipment (bal. fi