Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 16 years and an estimated residual value of $60,000.
a. What was the depreciation for the first year?
b. Assuming that the equipment was sold at the end of the second year for $480,000, determine the gain or loss on the sale of the equipment.
c. Journalize the entry to record the sale.
Answer:
a. $75,000 = $600,000 × [(100% ÷ 16) × 2)] = $600,000 × 12.5% b. $20,625 gain, computed as follows: Cost................................................... $600,000 First-year depreciation..................... (75,000) Second-year depreciation.................. (65,625) [($600,000 – $75,000) × 12.5%] Book value at end of second year............ $459,375 Gain on sale ($480,000 – $459,375) = $20,625 c. Cash 480,000 Accumulated Depreciation—Equipment 140,625 Equipment 600,000 Gain on Sale of Equipment 20,625