Question

Paris Company purchased equipment on January 1, 2012, for $25,000. The estimated useful life of the equipment is five years, the salvage value is $5,000, and the company uses the double-declining-balance method to depreciate fixed assets. a. Provide the journal entry assuming the equipment is scrapped after three years. . Provide the journal entry assuming the equipment is scrapped after five years. Provide the journal entry assuming the equipment is sold for $8,000 after three years. . Provide the journal entry assuming, at the end of the fifth year, the equipment and $28,000 cash are traded in for a dissimilar asset with an objectively determined FMV of $30,000.

Answer 1

Depreciation by double declining method = 2 × Straight-line depreciation rate × Book value at the beginning of the year
Depreciation by staight line = 25000-5000(scrap value )/5 years= 20000/5= 4000
as %age this is 4000/20000= 20%	there for %age for double declining will be 2 * 20 % = 40%
Depreciation table:
	Depreciation	Depreciation		Accumulated	Book
Date	%	Expense	Cost	Depreciation	Value
01-01-12			$25,000	0	$25,000
12/31/12	40%	$10,000	25,000	10,000	15,000
12/31/13	40%	6,000	25,000	16,000	9,000
12/31/14	40%	3,600	25,000	19,600	5,400
12/31/15	40%	400	25,000	20,000	5,000		equipment's book value cannot go below its estimated salvage value, depreciation expense for 2015 cannot exceed $400.
12/31/16	40%	0	25,000	20,000	5,000
	Debit	Credit
a. Accumulated Depreciation—Equipment	19,600
Loss on Disposal of Equipment	5,400
Equipment		25,000
(sale of equipment as scrap)
b. Accumulated Depreciation—Equipment	20,000
Loss on Disposal of Equipment	5,000
Equipment		25,000
(sale of equipment as scrap)
c. Cash	8,000
Accumulated Depreciation—Equipment	19,600
Equipment		25,000
Gain on Sale of Fixed Assets		2,600
Sold equipment for cash
d. Fixed Asset - new	30000
Accumulated Depreciation—Equipment	20,000
Loss on Disposal of Fixed Asset	3,000
Cash		28,000
Equipment		25000
Exchanged fixed asset for a dissimilar asset