Vogel Manufacturing has a December 31 year end and uses the straight-line method for depreciating its...

Vogel Manufacturing has a December 31 year end and uses the straight-line method for depreciating its equipment and the double-diminishing-balance method for its trucks. Vogel began 2021 with a single piece of equipment that had been purchased on January 1, 2020, for $255,000 and a truck that had been purchased on January 1, 2019, for $148,000. When the equipment was purchased, Vogel's management had estimated that it would have a residual value of $15,000 and a useful life of five years. When the truck was purchased, management determined that it would have a useful life of four years and a residual value of $26,700. On November 21, 2021, Vogel sold the piece of equipment for $151,000 cash. The company purchased replacement equipment on November 26 for $389,000 cash. Vogel's management determined that the new piece of equipment would have a useful life of four years and a residual value of $29,000.

Required Prepare all necessary journal entries for the year ended December 31, 2021.

Solutions

Expert Solution

Calculation of Depreciaton for Truck under Double Diminishing Balance Method

Original Cost = $ 148000
Residual Value = $ 26700
Depreciable asset cost ( 148000 - 26700) = $ 121300
Depreciable Expenses ( 121300 / 4year) = $ 30325
Straight-line Depreciation Rate = Depreciation Expense / Depreciable Asset cost = 30325 / 121300 * 100
= 25%
Double-declining Depreciation Rate = Straight-line Depreciation Rate x 2
= 25 * 2 = 50%
Depreciation for the year 2019(148000*50%) = $ 74000
Book value on 1-1-2020 (148000 - 74000) = $ 74000
Depreciation for the year 2020(74000*50%) = $ 37000
Book value of 1-1-2021 (74000 - 37000) = $ 37000
Depreciation for the year 2021(37000*50%) = $18500

Computation of Depreciation of Equipment under SLM

Original Cost = $ 255000
Residual value = $ 15000
Depreciation ( 255000-15000 / 5) = $ 48000
Book value as on 1-1-2021(255000-48000) = $ 207000
Depreciaiton for sold equipment(48000*325/365)=$42740
Loss on sales of equipment(207000-151000-42740)=$13260
Depreciaition for new equipment = $ 8630
(389000-29000 / 4 *35/365)

Journal Entry

31-12-2021 Depreciation A/c Dr 69870
To Truck A/c 18500
To Equipment A/c 51370 (42740 + 8630)
31-12-2021 Profit and Loss A/c Dr 69870
To Depreciation 69870
31-12-2021 Profit and Loss A/c Dr 13260
To Loss on sale of equipment 13260

ekkarill92 answered 1 year ago

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