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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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.

  1. a. What was the depreciation for the first year?
  2. b. Assuming that 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.
  3. c. Journalize the entry to record the sale.

(a)

To determine

Double-declining-balance method: It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less accumulated depreciation) of the long-term asset is decreased by a fixed rate. It is double the rate of the straight-line depreciation. Use the following formula to determine the annual depreciation:

Annual depreciation = Purchase price × (2Useful life)

To determine: the depreciation for the first year.

Explanation

Determine the depreciation for the first year.

Cost of the equipment =$600,000

Double-declining-balance rate = 12.5% (1)

Double-declining-balancedepreciation =Costofthebuilding×Depreciationrate=$600,000×12.5%=$75,000

Working note:

Determinethe double-declining-balance rate

(b)

To determine
the gain or loss on the sale of the equipment.

(c)

To determine

To journalize: theentry to record the sale of the equipment.

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