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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 $27,000. 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

Answer:- Gain on sale of equipment = $6520

Explanation-

Double Declining balance depreciation is calculated using the following formula:

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/10 = 0.10 = 10%
Declining Balance Rate = 2*10% = 20%

Depreciation for 2017 = $50000 *20% = $10000

Book value at end of 2017 = $50000 – $10000 = $40000

Depreciation for 2018 = $40000* 20% = $8000

Book value at end of 2018 = $40000 – $8000 = $32000

Depreciation for 2019 = $32000* 20% = $6400

Book value at end of 2019 = $32000 – $6400 = $25600

Depreciation for 2020 = $25600* 20% = $5120

Book value at end of 2020 = $25600 – $510 = $20480

Sale value of machine =$27000

Gain on sales of machine = Sale value of machine- Book value on 1 January 2021

= $27000-$20480

=$6520

ekkarill92 answered 8 months ago
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