On July 1, 2016, Alpha Company purchased for $72,000, equipment having a service

Question

On July 1, 2016, Alpha Company purchased for $72,000, equipment having a service life of eight years and an estimated residual value of $6,000. Alpha has recorded depreciation of the equipment using the double-declining balance method. On December 31, 2018, before making any annual adjusting entries, the equipment was exchanged for new machinery having a fair value of $32,500. The transaction has commercial substance. Use this information to prepare all General Journal entries (without explanation) required to record the events for December 31, 2018

Explanation / Answer

Solution:

Depreciation rate on equipment at SLM = 1/8 = 12.5%

Depreciation rate on equipment using double declining method = 12.50*2 = 25%

Deprecation for 2016 = $72,000*25%*6/12 = $9,000

Carrying value of equipment at end of 2016 = $72,000 - $9000 = $63,000

Depreciation for 2017 = $63,000*25% = $15,750

Carrying value at the end of 2017 = $63,000 - $15,750 = $47,250

Depreciation for 2018 = $47,250 * 25% = $11,813

Carrying value at the end ofr 2018 = $47,250 - $11,813 = $35,437

Accumulated depreciation = $9,000 + $15,750 + $11,813 = $36,563

Journal Entries - Alpha Company Date Particulars Debit Credit 31-Dec-18 Depreciation Expense Dr $11,813.00        To Accumulated Depreciation - Equipment $11,813.00 31-Dec-18 Machinery A/c Dr $32,500.00 Accumulated Depreciation - Equipment Dr $36,563.00 Loss on sale of equipment Dr $2,937.00        To Equipment $72,000.00

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