Question

New lithographic equipment, acquired at a cost of $940,000 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $105,750. 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, the equipment was sold for $151,924. Required: 1. Determine the annual depreciation expense for each of the estimated five 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 (a) the straight-line method and (b) the double declining- balance method. Round your answers to the nearest whole dollar. 2. On January 1, journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles. 3. On January 1, journalize the entry to record the sale, assuming that the equipment was sold for $105,874 instead of $151,924. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Answer 1-a.
Straight Line Method
Depreciation per Annum = (Cost - Salavge) / Life of Assets
Depreciation per Annum = ($940,000 - $105,750) / 5 Years
Depreciation per Annum = $166,850
Year	Beg. Bal.	Depreciation	Accumulated Depreciation	End. Bal.
1	940,000	166,850	166,850	773,150
2	773,150	166,850	333,700	606,300
3	606,300	166,850	500,550	439,450
4	439,450	166,850	667,400	272,600
Answer 1-b.
Double Declining Balance Method
Rate of Depreciation Under DDBM = 2 X 20% (Rate of depreciation under Straight Line Method)
Rate of Depreciation Under DDBM = 40%
Year	Beg. Bal.	Depreciation	Accumulated Depreciation	End. Bal.
1	940,000	376,000	376,000	564,000
2	564,000	225,600	601,600	338,400
3	338,400	135,360	736,960	203,040
4	203,040	81,216	818,176	121,824

Answer 2.
Journal Entry
Date	Particulars	Debit	Credit
DDBM Method
1-Jan	Cash	151,924.00
	Accumulated Depreciation - Equipment	818,176.00
	Equipment		940,000.00
	Gain on sale of Equipment		30,100.00
	(record the sale of Equipment)
Gain of sale of Equipment = $151,924 (Sales Price) - $121,824 (WDV - End of 4 Year)
Gain of sale of Equipment = $30,100
Answer 3.
Journal Entry
Date	Particulars	Debit	Credit
DDBM Method
1-Jan	Cash	105,874.00
	Accumulated Depreciation - Equipment	818,176.00
	Loss on Sale of Equipment	15,950.00
	Equipment		940,000.00
	(record the sale of Equipment)
Loss on sale of Equipment = $121,824 (WDV - End of 4 Year) - $105,874 (Sales Price)
Loss on sale of Equipment = $15,950