Question

Wolverines Corporation purchased a large piece of equipment for $500,000 and placed in in service on January 1, 2018. The machinery has a useful life of 5 years or 37,500 hours of operation. Its estimated residual value is $50,000 Please give me the following (while clearly showing your calculations): 1. Journal entry for Depreciation Expense in 2020 using the Straight-Line Method 2. Journal entry for Depreciation Expense in 2020 using the Production method with depreciation being based on estimated machine hours based on estimated machine hours. The equipment was used for 7,000 hours, 9,000 hours and 10,000 hours in 2018, 2019 & 2020 respectively. 3. Journal entry for Depreciation Expense in 2020 using the Double Declining Balance Method 4. The journal entry to record the gain or loss for all 3 methods assuming the equipment was sold at the end of 2020 for $200,000

Answer 1

Requirement 1:

Date	Account title and explanation	Debit	Credit
Dec 31,2018	Depreciation expense	$90,000
	Accumulated depreciation-equipment		$90,000
	[To record depreciation expense]

Calculations:

Depreciation expense = [(Cost - salvage value)/useful life] = (500,000-50,000)/5

= 450,000/5

= $90,000

Requirement 2:

Date	Account title and explanation	Debit	Credit
Dec 31,2018	Depreciation expense	$120,000
	Accumulated depreciation-equipment		$120,000
	[To record depreciation expense]

Calculations:

Depreciable value = cost - salvage value = $500,000-$50,000 = $450,000

Year	Deprciable value	x	Percentage of activity	=	Depreciation expense
2018	450,000	x	7,000/37,500	=	84,000
2019	450,000	x	9,000/37,500	=	108,000
2020	450,000	x	10,000/37,500	=	120,000
Total					312,000

Requirement 3:

Date	Account title and explanation	Debit	Credit
Dec 31,2018	Depreciation expense	$10,800
	Accumulated depreciation-equipment		$10,800
	[To record depreciation expense]

Calculation:

Depreciation Rate under straight line = 20% & Depreciation Rate under double declining balance = 40%

Year	Beginning Book value	Rate	Dep. Expense	Ending Book value
2018	50,000	40%	20,000	30,000
2019	30,000	40%	12,000	18,000
2020	18,000	40%	7,200	10,800
Total			39,200

Requirement 4:

Straight-line:
Sale price		$200,000
Book value:
Cost	$500,000
Accumulated depreciation (90,000 x 3)	($270,000)	($230,000)
Gain(loss) on sale		($30,000)
Units of activity:
Sale price		$200,000
Book value:
Cost	$500,000
Accumulated depreciation	($312,000)	($188,000)
Gain(loss) on sale		$12,000
Double declining:
Sale price		$200,000
Book value:
Cost	$500,000
Accumulated depreciation	($39,200)	($460,800)
Gain(loss) on sale		($260,800)