Question

On July 1, 2016, Alpha Company purchased for $76,000, equipment having a service life of eight years and an estimated residual value of $4,000. Alpha has recorded depreciation of the equipment using the double-declining balance method. On December 31, 2018, before making any annual adjusting entries, the equipment was exchanged for new machinery having a fair value of $35,000. The transaction has commercial substance. Use this information to prepare all General Journal entries (without explanation) required to record the events for December 31, 2018. Round numbers to whole dollars

Answer 1

Answer :-

Journal entries required to record the events for December 31,2018 are as follows :-

Date	Particular	Debit	Credit
Dec 31,2018	Depreciation Expense A/c Dr.	$12,469
	To Accumulated Depreciation A/c		$12,469
	(To record depreciation for 2018)
Dec 31,2018	Machinery A/c Dr. (New machinery)	$35,000
	Accumulated depreciation A/c Dr.	$38,594
	Loss on disposal of equipment A/c	$2,406
	To Equipment A/c		$76,000
	(To record the purchase of new machine in exchange of equipment)

Note :-

Alpha Company purchased for $76,000, equipment having a service life of eight years and an estimated residual value of $4,000

Asset value after residual value = $76,000 - $4,000 =$72,000

Depreciation = $72,000 / 8 = $9,000

Depreciation rate = $9,000 /$72,000 =0.125 or 12.5%

Double declining depreciation rate = 12.5% × 2 = 25%

Double declining balance
Year	Beginning book value	Depreciation rate	Depreciation expense (Beginning book value × Depreciation rate)	Accumulated depreciation(Depreciation Expense + last year accumulated depreciation)	Ending book value
2016 (July to Dec)	$76,000	25%	$9,500 ($76,000 x 25% × 1/2)	$9,500	$66,500
2017	$66,500	25%	$16,625	$26,125	$49,875
2018	$49,875	25%	$12,469	$38,594	$37,406