Question

Wellsburgs Co. Purchased equipment costing $840,000 on credit with an eight year life, and estimated $28,000 salvage value on January 1, 2004. Wellsburgh Co. Will depreciated the equipment using the double declining balance method. required:

1) Calculate depreciation expense for the equipment for 2004, and 2005.
2) Prepare the Journal entries to record the following.
a) purchased of equipment on January 1, 2004. b) Depreciation in 2004.

Answer 1

To calculate the depreciation expense for the equipment, we use the double declining balance method. The depreciation expense for 2004 is $210,000 and for 2005 is $157,500. The journal entries for the purchase of equipment and depreciation expense in 2004 are provided.

Step-by-step explanation:

1) To calculate the depreciation expense for the equipment, we first need to determine the annual depreciation rate using the double declining balance method. The formula for the annual depreciation rate is: 2 / useful life. In this case, the useful life is 8 years, so the annual depreciation rate is 2 / 8 = 0.25 (25%).

To calculate depreciation expense for 2004, we multiply the initial cost of the equipment ($840,000) by the annual depreciation rate (0.25): $840,000 * 0.25 = $210,000. Therefore, the depreciation expense for 2004 is $210,000.

To calculate depreciation expense for 2005, we use the same formula but apply it to the remaining book value of the equipment. The book value at the end of 2004 is the initial cost minus the depreciation expense for 2004: $840,000 - $210,000 = $630,000. So the depreciation expense for 2005 is $630,000 * 0.25 = $157,500.

2) a) The journal entry to record the purchase of equipment on January 1, 2004 would be:

• Debit Equipment $840,000
• Credit Accounts Payable $840,000

b) The journal entry to record the depreciation expense in 2004 would be:

• Debit Depreciation Expense $210,000
• Credit Accumulated Depreciation $210,000