New lithographic equipment acquired at a cost of 772800 at t

New lithographic equipment, acquired at a cost of $772,800 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $86,940. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declinina-balance method was selected. In the first week of the fifth year, the equipment was sold for $130,585 Required 1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double declining-balance method. Round your answers to the nearest whole dollar. 2. On January 1, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles. 3. On January 1, journalize the entry to record the sale, assuming that the equipment was sold for $87,105 instead of $130,585. Refer to the Chart of Accounts for exact wording of account titles.

Solution

1)

a. Straight Line method of depreciation :

Depreciation for each year = (Cost -Residual)/ No of years

=(772800- 86940)/5

= 137172

Depreciation is zero for year 5 since the machinery is sold in the year 5.

Also, if accumulated depreciation account is opened then book value of the asset will be continued to be shown at 772,800. Here in the answer it is deducted to show the effect of depreciation.

b. Double Declining Method:

Depreciation rate =( 2 * Straight Line depreciation) / ( Book Value - Residual Value)

= (2* 137172) / (772800-86940)

= 0.4 or 40%

Double declining method is calculated on the ending book value at the end of each year :

2.

3.

Year	Depreciation Expense	Accumulated Depreciation, End of Year	Book Value, End of Year
1	137172	137172	635628
2	137172	274344	498456
3	137172	411516	361284
4	137172	548688	224112
5	0	0	0