Question

The accountant for Becker Company wants to develop a balance sheet as of December 31, 2016. A review of the asset records has revealed the following information:

a.	Asset A was purchased on July 1, 2014, for $50,000 and has been depreciated on the straight-line basis using an estimated life of six years and a residual value of $5,000.
b.	Asset B was purchased on January 1, 2015, for $82,500. The straight-line method has been used for depreciation purposes. Originally, the estimated life of the asset was projected to be six years with a residual value of $7,500; however, at the beginning of 2016, the accountant learned that the remaining life of the asset was only three years with a residual value of $2,500.
c.	Asset C was purchased on January 1, 2015, for $50,000. The double-declining-balance method has been used for depreciation purposes, with a four-year life and a residual value estimate of $5,000.

Required:

1.	Assume that these assets represent pieces of equipment. Calculate the acquisition cost, accumulated depreciation, and book value of each asset as of December 31, 2016.
2.	How would the assets appear on the balance sheet on December 31, 2016?
3.	Assume that Becker Company sold Asset B on January 2, 2017, for $34,500. Calculate the amount of the resulting gain or loss and prepare the journal entry for the sale. Where would the gain or loss appear on the income statement?

Answer 1

Asset A
	Purchased on 01st July 2014
	Depreciation on straight line method
	Therefore per year depreciation = (50000-5000)/6
		7500
	Purchase as on 01st July 2014		50000
	Less : Depreciation for 2014 six months(7500/2)		-3750
	Value of asset A as on 31st Dec 2014		46250
	Less : Depreciation for 2015		-7500
	Value of asset A as on 31st Dec 2015		38750
	Less : Depreciation for 2016		-7500
	Value of asset A as on 31st Dec 2016		31250
Asset B	Purchased on 01st January 2015
	Depreciation on straight line method
	Therefore per year depreciation = (82500-7500)/6	12500
	Purchased on 01st January 2015		82500
	Less: Depreciation for 2015		-12500
	Value of asset B as on 31st Dec 2015		70000
	Revised depreciation (70000-2500)/3		22500
	Value of Asset B as on 01st Jan 2016		70000
	Less: Depreciation for 2016		-22500
	Value of Asset B as on 31st Dec 2016		47500
Asset C	Purchased on 01st January 2015
	Double declining balance method
	In this method the depreciation rate is double the straight line method rate
	(50000-5000)/4		11250
	Straight Line depreciation rate = 11250/45000		0.25
	Double declining balance Rate 0.25*2		0.5
	Purchased on 01st January 2015		50000
	Less: Depreciation for 2015		-25000
	Value of asset B as on 31st Dec 2015		25000
	Less: Depreciation for 2016		-12500
	Value of Asset B as on 31st Dec 2016		12500
	The acquisition cost would be as follows
	Asset A	50000
	Asset B	82500
	Asset C	50000
	Total Acquisition cost	182500
	Accumulated depreciation
	Asset A	18750
	Asset B	35000
	Asset C	37500
	Total accumulated depreciation	91250
	Book Value
	Asset A	31250
	Asset B	47500
	Asset C	12500
	The assets would appear as follows
	Asset A
	Cost of acquisition	50000
	Less: Accumulated depreciation	18750
	Book value as on 31st Dec 2016	31250
	Asset B
	Cost of acquisition	82500
	Less: Accumulated depreciation	35000
	Book value as on 31st Dec 2016	47500
	Asset C
	Cost of acquisition	50000
	Less: Accumulated depreciation	-37500
	Book value as on 31st Dec 2016	12500
	If asset B is sold on 2nd Jan 2017 for 34500
	Value of Asset B as on 01st Jan 2016		70000
	Less: Depreciation for 2016		-22500
	Value of Asset B as on 31st Dec 2016		47500
	Less: Sale of asset B		-34,500
	Profit from sale of asset B		13,000.00
	Journal Entry for sale would be
	Cash	34500
	Profit on sale of asset B	13000
	To Asset B		47500
	The gain would appear on the credit side of the income statement