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 $40,000 and has been depreciated on the straight-line basis using an estimated life of six years and a residual value of $4,000.
b.	Asset B was purchased on January 1, 2015, for $79,200. 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 $7,200; 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 $2,400.
c.	Asset C was purchased on January 1, 2015, for $58,000. 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 $32,600. 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?

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 $40,000 and has been depreciated on the straight-line basis using an estimated life of six years and a residual value of $4,000.
b.	Asset B was purchased on January 1, 2015, for $79,200. 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 $7,200; 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 $2,400.
c.	Asset C was purchased on January 1, 2015, for $58,000. 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 $32,600. 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

A)
BECKER COMP
SUMMARY OF ASSET COST AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2016
ASSETS	ACQUISITION COST	ACCUMULATED DEPRECIATION	BOOK VALUE
A	$          40,000	$                    15,000	$       25,000
B	$          79,200	$                    33,600	$       45,600
C	$          58,000	$                    43,500	$       14,500
Total	$        177,200	$                    92,100	$       85,100
Asset A
Straight-line:
Cost	$     40,000.00
Less: Salvage value	$       4,000.00
Depreciable Cost	$     36,000.00
Depreciation Rate = 1/6	17%
Annual depreciation expense	$       6,000.00
Year	Depreciable cost	Depreciation Rate		Depreciation Expense	Accumulated Depreciation	Book Value
July 1 2014	$     36,000.00	X	8%	=	$       3,000.00	$             3,000.00	$         37,000.00
Dec 31 2015	$     36,000.00	X	17%	=	$       6,000.00	$             9,000.00	$         31,000.00
Dec 31 2016	$     36,000.00	X	17%	=	$       6,000.00	$           15,000.00	$         25,000.00
Asset B
Straight-line:
Cost	$     79,200.00
Less: Salvage value	$       7,200.00
Depreciable Cost	$     72,000.00
Depreciation Rate = 1/6	17%
Annual depreciation expense ( for 2015)	$       1,200.00
At the beginning of 2016 Depreciation exp.((72000-12000)-2400)/3	$     21,600.00
Year	Depreciable cost	Depreciation Rate		Depreciation Expense	Accumulated Depreciation	Book Value
Dec 31 2015	$     72,000.00	X	17%	=	$     12,000.00	$           12,000.00	$         67,200.00
Dec 31 2016	$     67,200.00	X	32%	=	$     21,600.00	$           33,600.00	$         45,600.00
Asset c
Double-declining balance:
Double declining depreciation rate = 1/4 x 2	50%
	Computation					Ending
Year	Beginning book value	Depreciation Rate		Depreciation Expense	Accumulated Depreciation	Book Value
Dec 31 2015	$     58,000.00	X	50%	=	$     29,000.00	$           29,000.00	$         29,000.00
Dec 31 2016	$     29,000.00	X	50%	=	$     14,500.00	$           43,500.00	$         14,500.00
B)
The  assets would appear in the Long-Term Assets category of the balance sheet as follows
Equipment	$        177,200
Less: Accumulated depreciation	$        (92,100)
Equipment (net)	$          85,100
c)
Asset B Book Value	$     45,600.00
Selling Price	$     32,600.00
Loss on Sale of Asset	$     13,000.00
Account titles and explanation	Debit	Credit
Cash	$     32,600.00
Accumulated Depreciation	$     33,600.00
Loss on Sale of Asset	$     13,000.00
Asset B		$               79,200.00
The Loss on Sale of Asset account should appear in the Other Income/Other Expense category of the income statement.