New tire retreading equipment, acquired at a cost of $110,000 on September 1 of Year 1(beginning of the fiscal year), has an estimated useful life of four years and an estimated re-sidual value of $7,500. The manager requested information regarding the effect of alternativemethods on the amount of depreciation expense each year. On the basis of the data presentedto the manager, the double-declining-balance method was selected.On September 6 of Year 4, the equipment was sold for $18,000.Instructions1. Determine the annual depreciation expense for each of the estimated four years of use, theaccumulated depreciation at the end of each year, and the book value of the equipment atthe end of each year by (a) the straight-line method and (b) the double-declining-balancemethod. The following columnar headings are suggested for each schedule:AccumulatedDepreciation,End of YearDepreciationExpenseBook Value,End of YearYear2. Journalize the entry to record the sale.3. Journalize the entry to record the sale, assuming that the equipment sold for $10,500instead of $18,000.

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Asked Dec 17, 2019
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New tire retreading equipment, acquired at a cost of $110,000 on September 1 of Year 1
(beginning of the fiscal year), has an estimated useful life of four years and an estimated re-
sidual value of $7,500. The manager requested information regarding the effect of alternative
methods on the amount of depreciation expense each year. On the basis of the data presented
to the manager, the double-declining-balance method was selected.
On September 6 of Year 4, the equipment was sold for $18,000.
Instructions
1. Determine the annual depreciation expense for each of the estimated four 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. The following columnar headings are suggested for each schedule:
Accumulated
Depreciation,
End of Year
Depreciation
Expense
Book Value,
End of Year
Year
2. Journalize the entry to record the sale.
3. Journalize the entry to record the sale, assuming that the equipment sold for $10,500
instead of $18,000.
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New tire retreading equipment, acquired at a cost of $110,000 on September 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of four years and an estimated re- sidual value of $7,500. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected. On September 6 of Year 4, the equipment was sold for $18,000. Instructions 1. Determine the annual depreciation expense for each of the estimated four 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. The following columnar headings are suggested for each schedule: Accumulated Depreciation, End of Year Depreciation Expense Book Value, End of Year Year 2. Journalize the entry to record the sale. 3. Journalize the entry to record the sale, assuming that the equipment sold for $10,500 instead of $18,000.

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Expert Answer

Step 1
  1. Compute the depreciation:
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Determine the annual depreciation expense, accumulated depreciation, and the book value by straight-line method. Book Accumulated Depreciation Expense Year Depreciation, End of Year Value, End of Year Year 1 $25,625 $51,250 $25,625 $25,625 $84,375 $58,750 $33,125 S7,500 Year 2 Year 3 $25,625 $25,625 $76,875 $102,500 Year 4 Working notes: Compute the depreciation expense. Cost -Residual value Depreciati on Estimateduseful life $110,000- S7,500 4years $102, 500 4 =S25, 625

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Step 2

Determine the annual depreciation expense, accumulated depreciation, and the book value by double-declining-balance method.

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Accumulated Book Year Depreciation Expense Depreciation, End of Year Value, End of Year $55,000 $55,000 $55,000 S110,000x- Year 1 $27,500 $82,500 $27, 500 $55,000×- Year 2 $13,750 $96,250 $13, 750 $27, 500x- Year 3 S7,500 $6,250 S102,500 Year 4

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Step 3
  1. Journalize the entry to record the sale:...
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Post Debit (S) Credit Account Title and Explanation Date Ref (S) Cash Accumulated depreciation-Equipment Equipment Gain on Sale of Equipment (To record the sale of equipment.) 18,000 96,250 110,000 4,250 Working note: Calculate the gain or (loss) on the sale of equipment. Title: Calculate the gain (loss) on sale of equipment Amount Amount Details Cash received on sale of equipment 18,000 Less: Cost of the equipment Less: Accumulated Depreciation Book Value of the equipment Gain on sale of equipment 110,000 (96,250) (13,750) 4,250

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