New lithographic equipment acquired at a cost of 940000 at t

New lithographic equipment, acquired at a cost of $940,000 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $105,750. 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, the equipment was sold for $151,924. 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 $105,874 instead of $151,924. Refer to the Chart of Accounts for exact wording of account titles.

Solution

Answer 1-a. Straight Line Method Depreciation per Annum = (Cost - Salavge) / Life of Assets Depreciation per Annum = ($940,000 - $105,750) / 5 Years Depreciation per Annum = $166,850 Year Beg. Bal. Depreciation Accumulated Depreciation End. Bal. 1               940,000                 166,850                166,850            773,150 2               773,150                 166,850                333,700            606,300 3               606,300                 166,850                500,550            439,450 4               439,450                 166,850                667,400            272,600 Answer 1-b. Double Declining Balance Method Rate of Depreciation Under DDBM = 2 X 20% (Rate of depreciation under Straight Line Method) Rate of Depreciation Under DDBM = 40% Year Beg. Bal. Depreciation Accumulated Depreciation End. Bal. 1               940,000                 376,000                376,000            564,000 2               564,000                 225,600                601,600            338,400 3               338,400                 135,360                736,960            203,040 4               203,040                   81,216                818,176            121,824 Answer 2. Journal Entry Date Particulars Debit Credit DDBM Method 1-Jan Cash    151,924.00 Accumulated Depreciation - Equipment    818,176.00 Equipment    940,000.00 Gain on sale of Equipment      30,100.00 (record the sale of Equipment) Gain of sale of Equipment = $151,924 (Sales Price) - $121,824 (WDV - End of 4 Year) Gain of sale of Equipment = $30,100 Answer 3. Journal Entry Date Particulars Debit Credit DDBM Method 1-Jan Cash    105,874.00 Accumulated Depreciation - Equipment    818,176.00 Loss on Sale of Equipment      15,950.00 Equipment    940,000.00 (record the sale of Equipment) Loss on sale of Equipment = $121,824 (WDV - End of 4 Year) - $105,874 (Sales Price) Loss on sale of Equipment = $15,950