Question

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.

Answer 1

• 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