5.Sale of Equipment Equipment was acquired at the beginning of the year at a cos

Question

5.Sale of Equipment Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 16 years and an estimated residual value of $60,000. a. What was the depreciation for the first year? $ b. Assuming the equipment was sold at the end of the second year for $480,000, determine the gain or loss on the sale of the equipment. $ c. Journalize the entry on Dec. 31 to record the sale. If an amount box does not require an entry, leave it blank. Dec. 31

Explanation / Answer

Double-declining depreciation rate = 1/16*2 = 12.50% a Depreciation for the first year = 600000*12.50%= 75000 b Depreciation for the second year =(600000-75000)*12.50%= 65625 Book value at the end of second year=600000-75000-65625= 459375 Gain on the sale of the equipment = 480000-459375= 20625 c Cash 480000 Accumulated depreciation-Equipment 140625            Equipment 600000            Gain on the sale of Equipment 20625

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