Question

Stan's Lumber Mill sold two pieces of equipment in 2017. The following information pertains to the two pieces of equipment:
Purchase Useful Salvage Depreciation Sales
Cost    Date    Life    Value    Method    Date Sold    Price   
#1 $86,000 7/1/13 5 yrs.    $6,000 Straight-line    7/1/17 $20,000
#2 $95,000 1/1/16 5 yrs.    $5,000 Double-declining 12/31/17 $37,000
   -balance

Instructions
(a) Compute the depreciation on each piece of equipment from the purchase date to the date of disposal (make a schedule - showing each year & each piece of equipment separately)
(b) Prepare the journal entries in 2017 to record 2017 depreciation and the sale of each piece of equipment.

Answer 1

Asset 1

Cost of the asset = 86000

Salavage Value = 6000

Useful Life = 5 years

Straight Line method

= (Cost – Salvage Value ) / useful life

= (86000-6000) / 5

= 16000 per year

Asset – 2

Cost of the asset = 95000

Salavage Value = 5000

Useful Life = 5 years

Straight line depreciation = (95000-5000) / 5

= 14000

Depreciation RATE =( Depreciation * 100) / (cost – Salavage value )

= (14000*100)/ 90000

= 20 %

Double Declining rate = 2 * Straight line depreciation rate

= 2 * 20

= 40%

	Depreciation Schedule	Asset 1
Date	net book value (beginning )	Depreciation	accumulated Depreciation	net book value (end of the year)
	A	B		(A-B)
31/12/13	86000	16000	16000	70000
31/12/14	70000	16000	32000	54000
31/12/15	54000	16000	48000	38000
31/12/16	38000	16000	64000	22000
31/12/17	22000	16000	80000	6000
	Depreciation Schedule	Asset 2
Date	cost of asset (beginning )	Annual Depreciation (40% of A)	accumulated Depreciation	book value (end of the year)
	A	B		(A-B)
31/12/16	95000	38000	38000	57000
31/12/17	57000	22800	60800	34200

	Journal Entries ( Asset 1)
Date	Accounts Name	Debit	Credit
31/12/17	Depreciation	16000
	To Accumulated depreciation		16000
	Sale of asset
31/12/17	Cash A/c	20000
	Accumulated depreciation	80000
	To Asset A/c		86000
	to gain on Asset disposal		14000
	Journal Entries ( Asset 2)
Date	Accounts Name	Debit	Credit
31/12/17	Depreciation	22800
	To Accumulated depreciation		22800
	Sale of asset
31/12/17	Cash A/c	37000
	Accumulated depreciation	60800
	To Asset A/c		95000
	to gain on Asset disposal		2800