Problem 9-4A Depreciation by Two Methods; Sale of Fixed Asset New lithographic e

Question

Problem 9-4A

Depreciation by Two Methods; Sale of Fixed Asset

New lithographic equipment, acquired at a cost of $787,500 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $67,500. 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.

In the first week of the fifth year, the equipment was sold for $115,000.

Instructions:

Hint(s)

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 the following methods:

a. Straight-line method

Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year

1 Fill in blanks Fill in Fill in $

2 $ $ $

3 $ $ $

4 $ $ $

5 $ $ $

b. Double-declining-balance method

Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year

1 $ $ $

2 $ $ $

3 $ $ $

4 $ $ $

5 $ $ $

Explanation / Answer

under double declining

1. depreciation=[(787500-67500)/5]*2=288000

2. (499500-67500)/4]*2=216000

3. (283500-67500)/3]*2=144000

4.(139500-67500)/2]*2=72000

under straight line= 787500-67500)/5=144000

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