Question

New lithographic equipment, acquired at a cost of $859,200 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $96,660. 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.

Required:
a. 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.
b. Journalize the entry to record the sale assuming the manager chose the double-declining-balance method.

Answer 1

Answer and Explanation:

The calculation and the journal entry is given below:

a)

Depreciation expense= (Original cost - Residual Value) ÷ Estimated useful life

= $(859200 - 96660) ÷ 5

= $152508

Year Depreciation Expense Accumulated depreciation Book Value,

1 $152508 $152508 $706692

2 152508 305016 554184

3 152508 457524 401676

4 152508 610032 249168

5 152508 762540 96660

b)

Depreciation rate is

= 100 ÷ 5 × 2

= 40%

Year Depreciation Expense Accumulated depreciation Book Value,

1 $343680 $343680 $515520

( 40% of 859200)

2 206208 549888 309312

(40% of 515520)

3 123725 673613 185587

4 74235 747848 111352

5 14692 762540 96660

(111352-96660)

c)

The journal entry is

Cash $141422.00

Accumulated depreciation- Equipment $747848.00

To Gain on sale of Equipment $30070.00

To Equipment $859200.00

(Being the sale of equipment is recorded)