Question

At the beginning of 2018, Flounder Company acquired equipment costing $170,800. It was estimated that this equipment would have a useful life of 6 years and a salvage value of $17,080 at that time. The straight-line method of depreciation was considered the most appropriate to use with this type of equipment. Depreciation is to be recorded at the end of each year.

During 2020 (the third year of the equipment’s life), the company’s engineers reconsidered their expectations, and estimated that the equipment’s useful life would probably be 7 years (in total) instead of 6 years. The estimated salvage value was not changed at that time. However, during 2023 the estimated salvage value was reduced to $5,000.

Indicate how much depreciation expense should be recorded each year for this equipment, by completing the following table.

Year		Depreciation Expense		Accumulated Depreciation
2018		$		$
2019
2020
2021
2022
2023
2024

Flint Co. has equipment that cost $78,300 and that has been depreciated $50,300.

Record the disposal under the following assumptions.

(a)		It was scrapped as having no value.
(b)		It was sold for $22,200.
(c)		It was sold for $29,500.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)
(c)

Answer 1

Answer -

1. Answer -

Year	Depreciation Expense	Accumulated Depreciation
2018	$25620	$25620
2019	$25620	$51240
2020	$20496	$71736
2021	$20496	$92232
2022	$20496	$112728
2023	$26536	$13264
2024	$26536	$165800

Calculation:

Cost of equipment = $170800

Salvage value = $17080 [For first five years]

Salvage value = $5000 [For Year 2023 and 2024]

Useful life = 6 years [For first two years]

Useful life = 7 years [For remaining years]

Straight-line method:

Depreciation expense = (Cost of equipment - Salvage value) / Useful life

For Year 2018 and 2019

Depreciation expense = ($170800 - $17080) / 6 years

Depreciation expense = $25620 for each of two years

For Year 2018

Accumulated depreciation = $25620

For Year 2019

Accumulated depreciation = $25620 + $25620 = $51240

Book value of equipment at the end of year 2019 = $170800 - $51240 = $119560

For Year 2020, 2021 and 2022

Here, Useful life of equipment is 7 years instead of 6 years

Therefore, Useful life of equipment = 5 years (7 - 2)

So,

Depreciation expense = ($119560 - $17080) / 5 years

Depreciation expense = $20496 for each of three years

For Year 2020

Accumulated depreciation = $51240 + $20496 = $71736

For Year 2021

Accumulated depreciation = $71736 + $20496 = $92232

For Year 2022

Accumulated depreciation = $92232 + $20496 = $112728

Book value of equipment at the end of year 2019 = $170800 - $112728 = $58072

For Year 2023 and 2024

Here, Salvage value was reduced to $5000

And useful life of equipment = 2 years (7 - 5)

Therefore,

Depreciation expense = ($58072 - $5000) / 2 years

Depreciation expense = $26536 for each of two years

For Year 2023

Accumulated depreciation = $112728 + $26536 = $139264

For Year 2024

Accumulated depreciation = $139264 + $26536 = $165800

2. Answer -

No.	Account Titles and Explanation	Debit	Credit
(a)	Accumulated depreciation	$50300
	Loss on disposal of equipment	$28000
	Equipment		$78300
(b)	Cash	$22200
	Accumulated depreciation	$50300
	Loss on sale of equipment	$5800
	Equipment		$78300
(c)	Cash	$29500
	Accumulated depreciation	$50300
	Gain on sale of equipment		$1500
	Equipment		$78300

Calculation:

(a) Loss on disposal of equipment = $78300 - $50300 = $28000

(b) Loss on sale of equipment = $78300 - ($22200 + $50300) = $5800

(c) Gain on sale of equipment = ($29500 + $50300) - $78300 = $1500