Equipment was acquired at the beginning of the year at a cost of $575,000. The e

Question

Equipment was acquired at the beginning of the year at a cost of $575,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 9 years and an estimated residual value of $49,295. A. What was the depreciation for the first year? Round your intermediate calculations to 4 decimal places. Round the depreciation for the year to the nearest whole dollar. B. Assuming that the equipment was sold at the end of the second year for $567,500, determine the gain or loss on the sale of the equipment. C. Journalize the entry on Dec. 31 to record the sale. Refer to the Chart of Accounts for exact wording of account titles.

Explanation / Answer

(A) DEPRECIATED USING DOUBLE-DECLINING-BALANCE METHOD I.E. DOUBLE OF STRAIGHT LINE PERCENTAGE ON OPENING BOOK VALUE. 9 YEARS USEFUL LIFE I.E. PERCENTAGE OF DEPRECIATION 100/9 = 11.1111% I.E. IN THIS METHOD RATE OF DEPRECIATION 2X 11.1111= 22.2222 EVERY YEAR ON BOOK VALUE. HENCE FIRST YEAR DEPRECIATION = (575000 - 49295) X 22.2222 = 116823.2165 = $116823

FOR NEXT YEAR DEPRECIATION ON BOOK VALUE = {(575000- 116823) - 49295} X 22.2222% =90862.5758

= $ 90863

(B) EQUIPMENT WAS SOLD AT END OF SECOND YEAR WHEN ITS BOOK VALUE WAS = 575000 - 116823 - 90863 =$ 367314

IF SOLD FOR $ 567500 THEN GAIN = $ 567500 - $367314 = $ 207686

(C) DEBIT TO DEPRECIATION EXPENCES FOR DEPRECIATION AMOUNT AND CREDIT TO ACCUMULATED DEPRECIATION

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