E7-22A. (Learning Objectives 3, 4: Measure DDB depreciation; analyze the effect
ID: 2575624 • Letter: E
Question
E7-22A. (Learning Objectives 3, 4: Measure DDB depreciation; analyze the effect of a sale ofa Plant asset) Assume that on January 2, 2014, Design Guild of Vermont purchased fixtures for 59,700 cash, expecting the fixtures to remain in service for five years. Design Guild has depreci ated the fixtures on a double-declining-balance basis, with $1,800 estimated residual value. On September 30, 2015, Design Guild sold the fixtures for $3,300 cash. Record both the deprecia- tion expense on the fixtures for 2015 and the sale of the fixtures. Apart from your journal entry, also show how to compute the gain or loss on Design Guild's disposal of these fixtures.Explanation / Answer
As per the double declining method of depreciation,
Depreciation in year 1: 9700*0.4 = 3880
Depreciation in year 2: (9700-3880)*0.4*9/12 = 1746
Since equipment was sold on 30 september, so 9 months
Book value at the end of year 2: (9700-3880-1746) = 4074
Gain/Loss on sale = Selling price - book value = 3300-4074 = -774
Journal entry:
Recording depreciation:
Depreciation expense: 1746 (Debit)
Accumulated depreciation: 1746 (Credit)
Recording the sale:
Cash: 3300 (Debit)
Accumulated Depreciation: 5626 (Debit)
loss on Asset: 774 (Debit)
Equipment Asset: 9700 (Credit)
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