Question

Equipment was acquired at the beginning of the year at a cost of $40,750. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of ten years and an estimated residual value of $790. a. What was the depreciation for the first year? b. Assuming the equipment was sold at the end of year 2 for $10,030, determine the gain or loss on the sale of the equipment.

Answer 1

1) Double decline rate = 100/10*2 = 20%

First year Dep = 40750*20% = 8150

Gain (loss) = 10030-(40750*80%*80%) = -16050

2) Depletion rate = 56250000/45000000 = 1.25

Depletion expense = 13500000*1.25 = 16875000

Dec 31	Depletion expense	16875000
	Accumulated depletion		16875000