In the first week of the fifth year, the equipment was sold for $135,000.
Instructions
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. The following columnar headings are suggested for each schedule:
Year
Depreciation
Expense
Accumulated
Depreciation,
End of Year
Book Value,
End of Year
2. Journalize the entry to record the sale.
3. Journalize the entry to record the sale, assuming that the equipment was sold for $88,750 instead of $135,000.
Answer:
1.
Depreciation
Accumulated
Depreciation, Book Value,
Year Expense End of Year End of Year
a. 1………………………………………………… $142,000 * $142,000 $658,000
2……………………………………………… 142,000 284,000 516,000
3………………………………………………… 142,000 426,000 374,000
4……………………………………………… 142,000 568,000 232,000
5………………………………………………… 142,000 710,000 90,000
* [($800,000 – $90,000) ÷ 5]
b. 1 [$800,000 × (1/5) × 2]………………… $320,000 $320,000 $480,000
2 [$480,000 × (1/5) × 2]………………… 192,000 512,000 288,000
3 [$288,000 × (1/5) × 2]………………… 115,200 627,200 172,800
4 [$172,800 × (1/5) × 2]………………… 69,120 696,320 103,680
5 ($800,000 – $696,320 – $90,000)…… 13,680 * 710,000 90,000
* Book value should not be reduced below $90,000, the residual value.
2.
Cash 135,000
Accumulated Depreciation—Equipment 696,320
Equipment 800,000
Gain on Sale of Equipment* 31,320
* $135,000 – $103,680
3. Cash 88,750
Accumulated Depreciation—Equipment 696,320
Loss on Sale of Equipment* 14,930
Equipment 800,000
* $103,680 – $88,750