Question

Depreciation by Two Methods; Sale of Fixed Asset

New tire retreading equipment, acquired at a cost of $812,500 on September 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $69,900. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.

In the first week of the fifth year, on September 6, the equipment was sold for $119,000.

Required:

1. Determine the annual depreciation expense for each of the estimated four years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by the following methods:

a. Straight-line method

Year	Depreciation Expense	Accumulated Depreciation, End of Year	Book Value, End of Year
1	$	$	$
2	$	$	$
3	$	$	$
4	$	$	$
5	$	$	$

b. Double-declining-balance method

Year	Depreciation Expense	Accumulated Depreciation, End of Year	Book Value, End of Year
1	$	$	$
2	$	$	$
3	$	$	$
4	$	$	$
5	$	$	$

2. Journalize the entry to record the sale, assuming double-declining-balance method is used. If an amount box does not require an entry, leave it blank.

3. Journalize the entry to record the sale in (2), assuming that the equipment was sold for $102,100 instead of $119,000. If an amount box does not require an entry, leave it blank.

Answer 1

a)	Straight Line Method
		Depreciation	=	812500	-	69900		=	148520
					5
Year	Depreciation	Accumulated Depre	Book Value At the end
1	1,48,520.00	1,48,520.00	6,63,980.00
2	1,48,520.00	2,97,040.00	5,15,460.00
3	1,48,520.00	4,45,560.00	3,66,940.00
4	1,48,520.00	5,94,080.00	2,18,420.00
5	2,034.52	5,96,114.52	2,16,385.48	>>> Depreciation is calculted for 5 Days.
b)	Double Declining Method
Year	Depreciation	Accumulated Depre	Book Value At the end
1	3,25,000.00	3,25,000.00	4,87,500.00
2	1,95,000.00	5,20,000.00	2,92,500.00
3	1,17,000.00	6,37,000.00	1,75,500.00
4	70,200.00	7,07,200.00	1,05,300.00
5	484.93	7,07,684.93	1,04,815.07	>>> Depreciation is calculted for 5 Days.
2
		Bank A/C Dr.		1,19,000.00
		To Fixed asset A/c			1,04,815.07
		To Profit or Loss on account of sale of Asset	14,184.93
3		Bank A/C	Dr.	1,02,100.00
		Loss on sale of FA	Dr.	2,715.07
		To Fixed asset A/c			1,04,815.07