Question

Sale of Equipment Equipment was acquired at the beginning of the year at a cost of $34,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of ten years and an estimated residual value of $660. a. What was the depreciation for the first year? b. Assuming the equipment was sold at the end of year 2 for $7,860, determine the gain or loss on the sale of the equipment.

Answer 1

a)

Cost of equipment = $34,000

Useful life = 10 years

Double declining depreciation rate = 2 x 1/useful life

= 2 x 1/10

= 20%

Depreciation expense for year 1 = Cost of equipment x Double declining depreciation rate

= 34,000 x 20%

= $6,800

b)

Book value of equipment at the end of year 1 = Cost of equipment - Depreciation expense for year 1

= 34,000 - 6,800

=$27,200

Depreciation expense for year 2 = Book value of equipment at the end of year 1 x Double declining depreciation rate

= 27,200 x 20%

= $5,440

Accumulated Depreciation at the end of year 2 = Depreciation expense for year 1 + Depreciation expense for year 2

= 6,800 + 5,440

=$12,240

Book value of equipment at the end of year 2 = Cost of equipment - Accumulated Depreciation at at the end of year 2

= 34,000 - 12,240

= $21,760

Sales price of equipment = $7,860

Loss on sale of equipment = Book value of equipment - Sales price of equipment

= 21,760 - 7,860

= $13,900