Question

Depreciation Schedules & Disposals Madrigal Corporation acquired a new vehicle for $82,000. The asset has a 5 year expected useful life and a residual value of $7,000. Prepare depreciation schedules for all five years under both the straight-line and double-declining balance methods.

Straight Line Method

year	depreciation expense	Accumulated depreciation	Net Book Value
1
2
3
4
5

Double- Declining Balance Method

year	depreciation expense	Accumulated depreciation	Net Book Value
1
2
3
4
5

Calculate the gain or loss if the company uses the straight-line method and sells the asset for $47,000 at the beginning of year 3, and record the entry. (HINT: Use NBV at the end of Year 2!)

Calculate the gain or loss if the company uses the double-declining-balance method and sells the asset for $47,000 at the beginning of year 3 and record the entry. (HINT: Use NBV at the end of Year 2!)

Answer 1

Solution:

Requirement 1: As per Straight line Method

Year	Depreciation Expense	Accumulated Depreciation	Net Book Value
1	15000	$                         15,000	$             67,000
2	15000	$                         30,000	$             52,000
3	15000	$                         45,000	$             37,000
4	15000	$                         60,000	$             22,000
5	15000	$                         75,000	$                7,000

Requirement 2: As per Double Decline Method

Year	Depreciation Expense	Accumulated Depreciation	Net Book Value
1	$                 32,800	$                         32,800	$             49,200
2	$                 19,680	$                         52,480	$             29,520
3	$                 11,808	$                         64,288	$             17,712
4	$                    7,085	$                         71,373	$             10,627
5	$                    3,627	$                         75,000	$                7,000

Working;

Year	Opening Balance	Depreciation	Accumulated Depreciation	Closing Balance
1	$                 82,000	$                         32,800	$             32,800	$                 49,200
2	$                 49,200	$                         19,680	$             52,480	$                 29,520
3	$                 29,520	$                         11,808	$             64,288	$                 17,712
4	$                 17,712	$                            7,085	$             71,373	$                 10,627
5	$                 10,627	$                            3,627	$             75,000	$                   7,000

Requirement 3: As per Straight line Method

Date	Account Titles and Explanation	Debit	Credit
Year 3	Cash	$    47,000.00
	Accumulated Depreciation- Vehicle	$    30,000.00
	Loss on sale of Vehicle	$      5,000.00
	Vehicle		$    82,000.00
	(To record Vehicle sale)

Requirement 4: As per Double Decline Method

Date	Account Titles and Explanation	Debit	Credit
Year 3	Cash	$    47,000.00
	Accumulated Depreciation- Vehicle	$    52,480.00
	Gain on sale of Vehicle		$    17,480.00
	Vehicle		$    82,000.00
	(To record Vehicle sale)