On July 1, 2016, Johnny Company purchased equipment for $550,000. The estimated useful life of the...

On July 1, 2016, Johnny Company purchased equipment for $550,000. The estimated useful life of the equipment is 10-years. It is predicted that the equipment can be sold at the end of the 10-year period for $90,000. Johnny uses the double-declining balance depreciation method. Johnny recorded depreciation normally during 2016, 2017, and 2018. However, because Johnny determined that the equipment was no longer useful to the company, Johnny sold the equipment on June 30, 2019 for $400,000.

1. Based on the above Scenario, how much depreciation expense would Johnny record on Dec. 31, 2017? $55,000 $99,000 $79,200 $35,200

2. Based on the above Scenario, how much depreciation expense would Johnny record on June 30, 2019 prior to the sale? $55,000 $99,000 $79,200 $35,200

Solutions

Expert Solution

Answer 1:

Depreciation expense would Johnny record on Dec. 31, 2017 = $99,000.

Explanation:

Double-declining balance depreciation method = 2 * SLM rate * Book value at the beginning of the year

SLM rate = 1/ Estimated useful life

= 1 / 10 years = 0.1

Depreciation from On July 1, 2016 to June 30, 2017 = 2 * 0.10 * $550,000 = $110,000

Book value on July 1, 2017 = $550,000 - $110,000 = $440,000

Depreciation from On July 1, 2017 to June 30, 2018 = 2 * 0.10 * $440,000 = $88,000

Depreciation from January 1, 2017 to June 30, 2017	($110,000 / 12 months) * 6 months	= $55,000
Depreciation from July 1, 2017 to June 30, 2017	($88,000 / 12 months) * 6 months	$44,000
Depreciation expense would Johnny record on Dec. 31, 2017		$99,000

Answer 2.

Depreciation expense would Johnny record on June 30, 2019 = $35,200

Explanation:

Book value on July 1, 2018 = $440,000 - $88,000 = $352,000

Depreciation from On July 1, 2018 to June 30, 2019 = 2 * 0.10 * $352,000 = $70,400

Depreciation from January 1, 2019 to June 30, 2019

($70,400 / 12 months) * 6 months

$35,200

ekkarill92 answered 10 months ago

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