On January 2, 2015 Lev Company purchases equipment for use in fabrication of a part for...

On January 2, 2015 Lev Company purchases equipment for use in fabrication of a part for one of its key products. The equipment costs $95,000, and its estimated useful life is 5 years, after which it is expected to be sold for $10,000.

Required:

a) Show how the equipment is reported on Lev’s balance sheet at the end of the third year assuming straight-line depreciation.

b) Lev decides to sell the equipment on January 2^nd of 2018 for $40,000. Prepare the journal entries to record the sale of the asset assuming that Lev uses SL depreciation, and then prepare the entry for the sale assuming that Lev uses DDB.

Solutions

Expert Solution

straight line depreciation = cost-salvage/useful life

=$95,000-$10,000/5

=$17,000

a) straight line method schedule of depreciation

year	depreciable amount	depreciation	Book value
2015	$95,000	$17,000	$78,000 [95000-17000]
2016	$78,000	$17,000	$61,000 [78000-17000]
2017	$61,000	$17,000	$44,000[61000-17000]

	Accumulated depreciation	$51,000

book value at the end of 3rd year would be $44,000

it would reflect as follows on balance sheet

partial balance sheet at December 2017

Asset
Equipment	$95,000
Less: Accumulated depreciation	($51,000)	$44,000

b] sold for $40,000 loss = book value as on date of sale-sale value

=$44,000-$40,000

=$4000

	General journal	debit	credit
Jan 02,2018	Cash	$40,000
	Loss on sale of equipment	$4,000
	accumulated depreciation	$51,000
	equipment		$95,000

DDB =double declining method it depreciates at the rate double than straight line rate.

DDB rate = 100%/useful life *2

=100/5 *2

=40%

years	depreciable value	depreciation	book value
2015	$95,000	$38,000[95000*40%]	$57,000[$95,000-$38,000]
2016	$57,000	$22,800 [57000*40%]	$34,200[57000-22800]
2017	$34,200	$13,680[34,200*40%]	$20,520 [34,200-13,680]

	Accumulated depreciation	$74,480

gain(loss) = sale value- book value

=$40,000-$20,520

=19,480$ gain

journal

	general journal	debit	credit
January 02,2018	cash	$40,000
	accumulated depreciation	$74,480
	gain on sale equipment		$19,480
	equipment		$95,000

ekkarill92 answered 10 months ago

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