On March 4 of Year 5, 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
2. Journalize the entry to record the sale assuming that 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 $88,750 instead of $135,000.
Answer:
1.
Depreciation Book Value,
Expense End of Year
a. 1......................................................$142,000 $658,000
2...................................................... 142,000 516,000
3...................................................... 142,000 374,000
4...................................................... 142,000 232,000
5...................................................... 142,000 90,000
Yearly depreciation = [($800,000 – $90,000) ÷ 5] = $142,000
b. [$800,000 × (100% ÷ 5) × 2]......... $320,000 $480,000
[$480,000 × (100% ÷ 5) × 2]......... 192,000 288,000
[$288,000 × (100% ÷ 5) × 2]......... 115,200 172,800
[$172,800 × (100% ÷ 5) × 2]......... 69,120 103,680
($800,000 – $696,320 – $90,000)... 13,680 90,000
Note: Book value should not be reduced below $90,000, the residual value.
2. Mar. 4 Cash
Accumulated Depreciation—Equipment
Equipment
Gain on Sale of Equipment
Gain on sale of equipment = $135,000 – ($800,000 – $696,320) = $31,320
3. Mar. 4 Cash
Accumulated Depreciation—Equipment
Loss on Sale of Equipment
Equipment
Loss on sale of equipment = $88,750 – ($800,000 – $696,320) = –$14,930