Question
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Adelphi Company purchased a machine on January 1, 2017, for $50,000. The machine was estimated to...
Adelphi Company purchased a machine on January 1, 2017, for $50,000. The machine was estimated to have a service life of ten years with an estimated residual value of $5,000. Adelphi sold the machine on January 1, 2021 for $24,000. Adelphi uses the double declining method for depreciation. Using this information, how much is the gain or (loss) for the equipment sale entry made on January 1, 2021. Enter a loss as a negative number.
Solutions
Expert Solution
| Cost | $ 50,000.00 |
| Accumulated depreciation | $ 29,520.00 |
| Book value | $ 20,480.00 |
| Sales price | $ 24,000.00 |
| Book value | $ 20,480.00 |
| Gain /(loss) | $ 3,520.00 |
Gain on sale = $3,520
.
Working
| Double declining Method | ||
| A | Cost | $ 50,000.00 |
| B | Residual Value | $ 5,000.00 |
| C=A - B | Depreciable base | $ 45,000.00 |
| D | Life [in years] | 10 |
| E=C/D | Annual SLM depreciation | $ 4,500.00 |
| F=E/C | SLM Rate | 10.00% |
| G=F x 2 | DDB Rate | 20.00% |
| Year | Beginning Book Value | Depreciation rate | Depreciation expense | Ending Book Value | Accumulated Depreciation |
| 2017 | $ 50,000.00 | 20.00% | $ 10,000.00 | $ 40,000.00 | $ 10,000.00 |
| 2018 | $ 40,000.00 | 20.00% | $ 8,000.00 | $ 32,000.00 | $ 18,000.00 |
| 2019 | $ 32,000.00 | 20.00% | $ 6,400.00 | $ 25,600.00 | $ 24,400.00 |
| 2020 | $ 25,600.00 | 20.00% | $ 5,120.00 | $ 20,480.00 | $ 29,520.00 |
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