Question

Depreciation by Two Methods; Sale of Fixed Asset New lithographic equipment, acquired at a cost of $875,000 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 $75,300. 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 $128,100. 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 Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year 1 $ $ $ 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ b. Double-declining-balance method Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year 1 $ $ $ 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ Feedback Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation. In the first year, the balance in the accumulated depreciation account is zero. Remember not to reduce book value below residual value. 2. Journalize the entry to record the sale assuming that the manager chose the double declining-balance method. If an amount box does not require an entry, leave it blank. Cash Accumulated Depreciation-Equipment Equipment Gain on Sale of Equipment Feedback Determine the book value at the point of sale. Compare the book value amount to the sale price. If the book value is less than the sale price, the asset was sold for a gain. If the book value is more than the sale price, the equipment was sold for a loss. If you no longer own the asset what accounts would need to be eliminated? 3. Journalize the entry to record the sale in (2) assuming that the equipment was sold for $110,000 instead of $128,100. If an amount box does not require an entry, leave it blank. Cash Accumulated Depreciation-Equipment Loss on Sale of Equipment Equipment Feedback Determine the book value at the point of sale. Compare the book value amount to the sale price. If the book value is less than the sale price, the asset was sold for a gain. If the book value is more than the sale price, the equipment was sold for a loss. If you no longer own the asset what accounts would need to be eliminated? Feedback Partially correct

Answer 1

S875,000.00 S 75,300.00 1 Cost of Asset 2 Residual Value 3 Useful life of Asset 4 Asset Sold for 5 Purchased on 6 Sold on S 128,100.00 1st March Year 1 4th March Year 5 If the E ent is sold for $110,000 cation Method: t Line Method JOURNAL ENTRY DOUBLE DECLINING BALANCE METHOD Depreciation Accumulated End of Year Expense DepreciationBook Value Year Account Titles Debit (S)it (S) $159,940.00 S159,940.00 715,060.00 159,940.00S319,880.00 S 555,120.00 159,940.00 $479,820.00 395,180.00 159,940.00 $639,760.00 235,240.00 159,940.00 $799,700.00 S 75,300.00 a Cash Accumulated D Loss on Si Equipment S 110,000.00 ent S761,600.00 S 3,400.00 Book Value 113,400.00 Sale Price 110,000.00 Gain (Loss) S (3,400 12 13 14 15 16 S 875,000.00 cation Method:Double Declining Balance Method JOURNAL ENTRY DOUBLE DECLINING BALANCE METHOD Depreciation AccumulatedEnd of Year Year Account Titles Debit (S)Credit (S) 17 18 19 20 21 Expense Depreciation Book Value S350,000.00 S350,000.00 S 525,000.00 5210,000.00 560,000.00 315,000.00 $126,000.00 $686,000.00 189,000.00 S75,600.00 761,600.00 113,400.00 S38,100.00 $799,700.00S 75,300.00 a Cash S 128,100.00 Book Value $ 113,400.00 Sale Price 128,100.00 Gain (Loss 14,700.00 tedDepreciation-Equipment $761,600.00 S 875,000.00 S 14,700.00 Gain on sale of

1 2 3 4 5 6 Cost of Asset Residual Value Useful life of Asset 5 Asset Sold for Purchased on Sold on 875000 73300 128100 1st March Year 1 4th March Year 5 ent is sold for $110,000 Method: Straight Line Method JOURNAL ENTRY DOUBLE DECLINING BALANCE METHOD Accumulated End of Year Depreciation Book Value Debit (S)Credit (S) Year Account Titles -B10 10 1 11 2 12 3 -SLN(SBS1,SBS2,SBS3) -SLN(SBS1,SBS2 SBS3 SLN SBS1SBS2 SBS3 -SLN(SBS1,SBS2 SBS3 LNSBS1SBS2 SBS3 -B1-B10 -D10-B11 D11-B12 -D12-B13 -D13-B14 110000 -C21 Book Value-D21 Sale Price 110000 Gain/ (Loss) =M11-M10 a Cash 10 B11 -C11-B12 -C12 B13 13-B14 Loss on Sale of Equipment ent 875000 14 5 15 16 lethodi ouDepreciation Double Dec Balance Method JOURNAL ENTRY- DOUBLE DECLINING BALANCE METHOD Accumulated End of Year Debit (S)Credit (S) B4 -C21 Year Date Account Titles Expense Depreciation ook Value 17 18 1 19 2 20 3 21 4 22 5 -B1-B18 a Cash Book Value =D21 Sale Price B Gain (Loss) M19-MIS DDB(SBS1,SBS2,SBS3,SA19) C18 B19 -C19-B20 21 SBS1,SBS2,SBS3,SA22) C21-B22 -DI8-B19 D19-B20 D20-B21 D21-B22 Accumulated Depreciation-Equipment 1,SBS2,SBS3,5 -B1 -SUM I18:119 DDB(SBS1,SBS2,SBS3,SA21 Gain on sale of