Question

A company buys a piece of equipment for $62,000. The equipment has a useful life of five years. No residual value is expected at the end of the useful life. Using the double-declining-balance method, what is the company's depreciation expense in the first year of the equipment’s useful life? (Do not round intermediate calculations) $12,400. $24,800. $15,500. $31,000. An asset is purchased on January 1 for $47,200. It is expected to have a useful life of four years after which it will have an expected residual value of $6,500. The company uses the straight-line method. If it is sold for $33,000 exactly two years after it is purchased, the company will record a:

gain of $6,150.

loss of $8,050.

gain of $8,050.

loss of $6,150.

Answer 1

• All working forms part of the answer
• Question #1

--Working

A	Cost	$            62,000.00
B	Residual Value	$                           -
C=A - B	Depreciable base	$            62,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$            12,400.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value
1	$       62,000.00	40.00%	$         24,800.00 [ANSWER]	$             37,200.00

Correct Answer = Option #2: $ 24,800

• Question #2

--Working

A	Cost	$            47,200.00
B	Residual Value	$              6,500.00
C=A - B	Depreciable base	$            40,700.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            10,175.00

2 years accumulated depreciation = 10175 x 2 = $ 20,350

Book Value at the time of Sale = 47200 – 20350 = $ 26,850

Sold for $ 33,000

Gain on Sale = 33000 – 26850 = $ 6,150

--Gain because Sale value is MORE than the Book Value.

Answer = Option #1: Gain of $ 6,150