Question

55,000 bense OBJ. 2,3 ginning of a fis- residual value of ternative methods data presented to PR 10-48 Depreciation by two methods; sale of fixed asset of $110,000 at the beginning of New tire retreading equipment, acquired at a cos cal year, has an estimated useful life of four years and an estimated residua 300. The manager requested information regarding the effect of alternativ on the amount of depreciation expense each year. On the basis of the data de the manager, the double-declining-balance method was selected. In the first week of the fourth year, the equipment was sold for $18,000. Instructions 1. Determine the annual depreciation expense for each of the estimated four ve use, the accumulated depreciation at the end of each year, and the book value equipment at the end of each year by (a) the straight-line method and (b) the de declining-balance method. The following columnar headings are suggested for schedule: ated four years of d (b) the double t Year Ver A Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year br 2. Journalize the entry to record the sale. 3. Journalize the entry to record the sale, assuming that the equipment sold for $10,500 instead of $18,000.

Answer 1

Answer to Requirement 1:

Straight-line Depreciation Method:

Cost of Equipment = $110,000
Residual Value = $7,500
Useful Life = 4 years

Annual Depreciation = (Cost of Equipment - Residual Value) / Useful Life
Annual Depreciation = ($110,000 - $7,500) / 4
Annual Depreciation = $25,625

Year 1 Accumulated Depreciation Book Value, End Depreciation, Expense of Year End of Year $ 25,625 $ 25,625 $ 84,375 $ 25,625 $ 51,250 $ 58,750 $ 25,625 $ 76,875$ 33,125 $ 25,625 $ 102,500 $ 7,500 51,2U 4

Double-declining-balance Depreciation Method:

Double-declining-balance Depreciation Rate = 2 / Useful Life
Double-declining-balance Depreciation Rate = 2 / 4
Double-declining-balance Depreciation Rate = 50%

Year Accumulated Depreciation Book Value, End Depreciation, Expense of Year End of Year $ 55,000 $ 55,000 $ 55,000 $ 27,500 $ 82,500 $ 27,500 13,750 $ 96,250 $ 13,750 6,250 $ 102,500 $ 7,500 9 WN $

Year 1:

Depreciation Expense = 50% * $110,000
Depreciation Expense = $55,000

Year 2:

Depreciation Expense = 50% * $55,000
Depreciation Expense = $27,500

Year 3:

Depreciation Expense = 50% * $27,500
Depreciation Expense = $13,750

Year 4:

Depreciation Expense = $13,750 - $7,500
Depreciation Expense = $6,250

Answer to Requirement 2:

Credit General Journal Cash Accumulated Depreciation Gain on Sale of Equipment Equipment Debit 18,000 96,250 4,250 110,000

Answer to Requirement 3:

General Journal Credit Cash Accumulated Depreciation Loss on Sale of Equipment Equipment Debit 10,500 96,250 3,250 110,000