Depreciation by Two Methods Sale of Foxed Asset New lithogra

Depreciation by Two Methods; Sale of Foxed Asset New lithographic equipment, acquired at a cost of $937,500 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $80,600. 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-declining-balance method was selected. In the first week of the fifth year, on March 4, the equipment was sold for $137,300. 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 the following methods: a. Straight-line method Depreciation Expense Book Value, End of Year Year End of Year

Solution

Answer:

1

Depreciation under straight line method

=937500-80600 / 5 year

=171,280 depreciation each year

Accumulated

Depreciation

Depreciation,

Book Value,

year

Expense

End of Year

End of Year

1

171380

171380

766,120

2

171,380

342,760

594,740

3

171,380

514,140

423,360

4

171,380

685,520

251,980

5

171,380

856,900

80,600

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2

Depreciation under DDB method

= Rate for DDB

=Straight-line rate x 2

=(100/5) x 2

=20% x2

=40%

Accumulated

Depreciation

Depreciation,

Book Value,

Expense

End of Year

End of Year

1

375000 (937500*40%)

375000

562500

2

225000 (562500*40%)

600000

337500

3

135000 (337500*40%)

735000

202500

4

81000 (202500*40%)

816000

121500

5

40900 (121500-80600)

856900

80600

_____________________________________________

3

Description

Debit $

Credit $

Cash

137300

Accumulated depreciation-equipment

816000

Equipment

937500

Gain on sale of equipment

15800

_________________________________________

Description

Debit $

Credit $

Cash

117900

Accumulated depreciation-equipment

816000

Loss on sale of equipment

3600

Equipment

937500

		Accumulated
	Depreciation	Depreciation,	Book Value,
year	Expense	End of Year	End of Year
1	171380	171380	766,120
2	171,380	342,760	594,740
3	171,380	514,140	423,360
4	171,380	685,520	251,980
5	171,380	856,900	80,600