Question

New lithographic equipment, acquired at a cost of $950,400 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $106,920. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.

In the first week of the fifth year, on March 4, the equipment was sold for $154,682.

	Required:
1.	Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. Round your answers to the nearest whole dollar.
2.	Journalize the entry to record the sale assuming the manager chose the double-declining-balance method.
3.	Journalize the entry to record the sale in (2), assuming that the equipment was sold for $108,792 instead of $154,682. Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTS General Ledger ASSETS 110 Cash 111 Petty Cash 112 Accounts Receivable 114 Interest Receivable 115 Notes Receivable 116 Merchandise Inventory 117 Supplies 119 Prepaid Insurance 120 Land 123 Delivery Truck 124 Accumulated Depreciation-Delivery Truck 125 Equipment 126 Accumulated Depreciation-Equipment 130 Mineral Rights 131 Accumulated Depletion 132 Goodwill 133 Patents LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary REVENUE 410 Sales 610 Interest Revenue 620 Gain on Sale of Delivery Truck 621 Gain on Sale of Equipment EXPENSES 510 Cost of Merchandise Sold 520 Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Delivery Truck 523 Delivery Expense 524 Repairs and Maintenance Expense 529 Selling Expenses 531 Rent Expense 532 Depreciation Expense-Equipment 533 Depletion Expense 534 Amortization Expense-Patents 535 Insurance Expense 536 Supplies Expense 539 Miscellaneous Expense 710 Interest Expense 720 Loss on Sale of Delivery Truck 721 Loss on Sale of Equipment Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. Round your answers to the nearest whole dollar. a. Straight-line method Accumulated Depreciation, Year Depreciation Expense End of Year Book Value, End of Year 1 2 3 4 5 b. Double-declining-balance method Accumulated Depreciation, Year Depreciation Expense End of Year Book Value, End of Year 1 2 3 4 5 2. On March 4, journalize the entry to record the sale assuming the manager chose the double-declining-balance method. Refer to the Chart of Accounts for exact wording of account titles. 2. On March 4, journalize the entry to record the sale assuming the manager chose the double-declining-balance method. Refer to the Chart of Accounts for exact wording of account titles. PAGE 1 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 4 3. On March 4, journalize the entry to record the sale in (2), assuming that the equipment was sold for $108,792 instead of $154,682. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

1)Straight Line method:

Depreciation : [cost -residual value ]/useful life

          =[950400-106920]/5

          = 168696

year	Depreciation expense	Accumulated depreciation	Book value at end
1	168696	168696	950400-168696=781704
2	168696	168696+168696= 337392	781704-168696= 613008
3	168696	337392+168696= 506088	613008-168696=444312
4	168696	506088+168696=674784	444312-168696= 275616
5	168696	674784+168696=843480	275616-168696= 106920

Double declining method:Depreciation rate = 2 /useful life

                    = 2/5

                   = .40

Year	Depreciation	Accumulated depreciation	Book value at end
1	950400*.4=380160	380160	950400-380160=570240
2	570240*.4= 228096	608256	570240-228096= 342144
3	342144*.4=136858	745114	342144-136858= 205286
4	205286*.4=82115	827229	205286-82115= 123171
5	16251    [123171-106920**restricted to salvage required at end]	843480	106920

2) & 3)

Date	Account	debit	credit
2	cash	154682
	Accumulated depreciation-equipment	843480
	Gain on Sale of Equipment		47762
	Equipment		950400
3	cash	108792
	Accumulated depreciation-equipment	843480
	gain on Sale of Equipment		1872
	equipment		950400