New lithographic equipment, acquired at a cost of $800,000 on March 1 at the beg
ID: 2566183 • Letter: N
Question
New lithographic equipment, acquired at a cost of $800,000 on March 1 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $90,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year.
In the first week of the fifth year, on March 4, the equipment was sold for $135,000.
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.
a. Straight-line method
b. Double-declining-balance method
Journalize the entry to record the sale in (2), assuming that the equipment was sold for $88,750 instead of $135,000. Refer to the Chart of Accounts for exact wording of account titles.
2. On March 4, journalize the entry to record the sale assuming the manager chose the double-decliningbalance method. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
JOURNAL
ACCOUNTING EQUATION
1
2
3
4
3. On March 4, journalize the entry to record the sale in (2), assuming that the equipment was sold for $88,750 instead of $135,000. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
JOURNAL
ACCOUNTING EQUATION
1
2
3
4
Loss on Sale of Equipment
Required: 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. 2. Journalize the entry to record the sale assuming the manager chose the double-declining-balance method. 31. 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.
a. Straight-line method
Accumulated Depreciation, Year Depreciation Expense End of Year Book Value, End of Year 1 2 3 4 5b. Double-declining-balance method
Accumulated Depreciation, Year Depreciation Expense End of Year Book Value, End of Year 1 2 3 4 5 .Journalize the entry to record the sale in (2), assuming that the equipment was sold for $88,750 instead of $135,000. Refer to the Chart of Accounts for exact wording of account titles.
CHART OF ACCOUNTS General Ledger ASSETS 110 Cash 111 Petty Cash 112 Accounts Receivable 114 Interest Receivable 115 Notes Receivable 116 Merchandise Inventory 117 Supplies 119 Prepaid Insurance 120 Land 123 Delivery Truck 124 Accumulated Depreciation-Delivery Truck 125 Equipment 126 Accumulated Depreciation-Equipment 130 Mineral Rights 131 Accumulated Depletion 132 Goodwill 133 Patents LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary2. On March 4, journalize the entry to record the sale assuming the manager chose the double-decliningbalance method. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
JOURNAL
ACCOUNTING EQUATION
DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY1
2
3
4
3. On March 4, journalize the entry to record the sale in (2), assuming that the equipment was sold for $88,750 instead of $135,000. Refer to the Chart of Accounts for exact wording of account titles.
PAGE 1
JOURNAL
ACCOUNTING EQUATION
DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY1
2
3
4
REVENUE 410 Sales 610 Interest Revenue 620 Gain on Sale of Delivery Truck 621 Gain on Sale of Equipment EXPENSES 510 Cost of Merchandise Sold 520 Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Delivery Truck 523 Delivery Expense 524 Repairs and Maintenance Expense 529 Selling Expenses 531 Rent Expense 532 Depreciation Expense-Equipment 533 Depletion Expense 534 Amortization Expense-Patents 535 Insurance Expense 536 Supplies Expense 539 Miscellaneous Expense 710 Interest Expense 720 Loss on Sale of Delivery Truck 721Loss on Sale of Equipment
Explanation / Answer
Straight line method
Accumulated Depreciation
Year Depreciation Expenses End of year Book value at the end
1 $142,000.00 $142,000.00 $658,000.00
2 $142,000.00 $284,000.00 $516,000.00
3 $142,000.00 $426,000.00 $374,000.00
4 $142,000.00 $568,000.00 $232,000.00
5 $142,000.00 $710,000.00 $90,000.00
b. Double Declining balance method
Accumulated Depreciation
Year Depreciation Expenses End of year Book value at the end
1 $266,667.00 $266,667.00 $533,333.00
2 $213,333.00 $480,000.00 $320,000.00
3 $128,000.00 $608,000.00 $192,000.00
4 $76,800.00 $684,800.00 $115,200.00
5 $25,200.00 $710,000.00 $90,000.00
JOURNAL ENTRY ON DOUBLE DECLINING METHOD
DATE DESCRIPTION POST REF DEBIT CREDIT
Year 1 Depreciation A/c 266667
To Equipment A/c 266667
(Being Depreciation charged to Equipment Account)
Profit & Loss A/c 266667
To Depreciation A/c 266667
Being Depreciation Transfer to Profit & Loss Account
Year 2 Depreciation A/c 213333
To Equipment A/c 213333
(Being Depreciation charged to Equipment Account)
Profit & Loss A/c 213333
To Depreciation A/c 213333
Being Depreciation Transfer to Profit & Loss Account
Year 3 Depreciation A/c 128000
To Equipment A/c 128000
(Being Depreciation charged to Equipment Account)
Profit & Loss A/c 128000
To Depreciation A/c 128000
Being Depreciation Transfer to Profit & Loss Account
Year 4 Depreciation A/c 76800
To Equipment A/c 76800
(Being Depreciation charged to Equipment Account)
Profit & Loss A/c 76800
To Depreciation A/c 76800
Being Depreciation Transfer to Profit & Loss Account
Year 5 Depreciation A/c 25200
Bank A/c 135000
To equipment A/c 90000
To Profit & Loss A/c 70200
being Depreciation charged ,equipment sold & balance amount gain on sale
of equipment transferred to profit & loss account
JOURNAL ENTRY IF THE ASSET SOLD FOR $88750
Year 5 Depreciation A/c 25200
Bank A/c 88750
To equipment A/c 90000
To Profit & Loss A/c 23950
being Depreciation charged ,equipment sold & balance amount gain on sale
of equipment transferred to profit & loss account
EXTRACTION OF WORDING OF ACCOUNT TITLES
ASSETS
LIABILITIES
EQUITY
REVENUE
EXPENSES
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