Question

In: Accounting

Equipment was acquired at the beginning of the year at a cost of $40,000. The equipment...

Equipment was acquired at the beginning of the year at a cost of $40,000. 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 $780. a. What was the depreciation for the first year?

b. Assuming the equipment was sold at the end of year 2 for $9,240, determine the gain or loss on the sale of the equipment. $fill in the blank

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Solutions

Expert Solution

  • Workings

A

Cost

$            40,000.00

B

Residual Value

$                  780.00

C=A - B

Depreciable base

$            39,220.00

D

Life [in years]

10

E=C/D

Annual SLM depreciation

$              3,922.00

F=E/C

SLM Rate

10.00%

G=F x 2

DDB Rate

20.00%

Year

Beginning Book Value

Depreciation rate

Depreciation expense

Ending Book Value

Accumulated Depreciation

1

$              40,000.00

20.00%

$            8,000.00

$             32,000.00

$           8,000.00

2

$              32,000.00

20.00%

$            6,400.00

$             25,600.00

$        14,400.00

  • Requirements

[a] Depreciation for Year 1 = $ 8000

[b]
Ending Book value at end of Year 2 = $ 25600
Sold for $ 9240
Hence,
LOSS on sale of Equipment = $ 25600 – 9240 = $ 16,360 [enter as negative if required]

[c]

Date

Accounts title & Explanation

Debit

Credit

Year 2

Cash

$      9,240.00

Accumulated Depreication

$    14,400.00

Loss on Asset disposal

$    16,360.00

    Equipment

$      40,000.00


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