Paris Company purchased equipment on January 1 2012 for 2500

Paris Company purchased equipment on January 1, 2012, for $25,000. The estimated useful life of the equipment is five years, the salvage value is $5,000, and the company uses the double-declining-balance method to depreciate fixed assets. a. Provide the journal entry assuming the equipment is scrapped after three years. . Provide the journal entry assuming the equipment is scrapped after five years. Provide the journal entry assuming the equipment is sold for $8,000 after three years. . Provide the journal entry assuming, at the end of the fifth year, the equipment and $28,000 cash are traded in for a dissimilar asset with an objectively determined FMV of $30,000.

Solution

Depreciation by double declining method = 2 × Straight-line depreciation rate × Book value at the beginning of the year Depreciation by staight line = 25000-5000(scrap value )/5 years= 20000/5= 4000 as %age this is 4000/20000= 20% there for %age for double declining will be 2 * 20 % = 40% Depreciation table: Depreciation Depreciation Accumulated Book Date % Expense Cost Depreciation Value 01-01-12 $25,000 0 $25,000 12/31/12 40% $10,000 25,000 10,000 15,000 12/31/13 40% 6,000 25,000 16,000 9,000 12/31/14 40% 3,600 25,000 19,600 5,400 12/31/15 40% 400 25,000 20,000 5,000 equipment\'s book value cannot go below its estimated salvage value, depreciation expense for 2015 cannot exceed $400. 12/31/16 40% 0 25,000 20,000 5,000 Debit Credit a. Accumulated Depreciation—Equipment 19,600 Loss on Disposal of Equipment 5,400 Equipment 25,000 (sale of equipment as scrap) b. Accumulated Depreciation—Equipment 20,000 Loss on Disposal of Equipment 5,000 Equipment 25,000 (sale of equipment as scrap) c. Cash 8,000 Accumulated Depreciation—Equipment 19,600 Equipment 25,000 Gain on Sale of Fixed Assets 2,600 Sold equipment for cash d. Fixed Asset - new 30000 Accumulated Depreciation—Equipment 20,000 Loss on Disposal of Fixed Asset 3,000 Cash 28,000 Equipment 25000 Exchanged fixed asset for a dissimilar asset