Chapter 6, Problem 6.27P

To determine

Concept Introduction:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $Doubledecliningdepreciationrate= \frac{2}{Expectedlifeinyears}$

Units of Production method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset is allocated on the basis of unit of production during its estimated life. The formula to calculate the deprecation under units of production method is as follows:

  $Depreciation=\frac{\left(Cost-SalvageValue\right)\times Unitsfortheperiod}{Estimatedlifeinunits}$

Requirement-a:

To Calculate:

The amount of depreciation expense for the year 2017

Answer to Problem 6.27P

The amount of depreciation expense for the year 2017 is $90,000

Explanation of Solution

The amount of depreciation expense for the year 2017 is calculated as follows:

	Year 2017	Year 2016
Accumulated depreciation	$ 240,000	$ 150,000
Depreciation for the year 2017	$90,000
(240000-150000)

To determine

Concept Introduction:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $Doubledecliningdepreciationrate= \frac{2}{Expectedlifeinyears}$

Units of Production method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset is allocated on the basis of unit of production during its estimated life. The formula to calculate the deprecation under units of production method is as follows:

  $Depreciation=\frac{\left(Cost-SalvageValue\right)\times Unitsfortheperiod}{Estimatedlifeinunits}$

Requirement-b:

To Calculate:

1. The original cost of the equipment
2. Depreciation method being used
3. Date of acquisition of the equipment

Answer to Problem 6.27P

1. The original cost of the equipment = $420,000
2. Depreciation method being used = Straight line depreciation
3. Date of acquisition of the equipment = Apr. 2015

Explanation of Solution

Calculation of Original cost of the equipment:
	Year 2017	Year 2016
Equipment Book Value, net (A)	$ 180,000	$ 270,000
Accumulated depreciation- Equipment (B)	$ 240,000	$ 150,000
Original Cost of the equipment	$ 420,000	$ 420,000
Identification of depreciation method:
	Year 2017	Year 2016
Accumulated depreciation- Equipment	$ 240,000	$ 150,000
Depreciation for the year 2017 (240000-150000)	$90,000
Straight line depreciation = (420000-60000)/4 years =	$90,000
Calculation of date of acquisition:
Accumulated depreciation till 2017 (A)	$ 240,000
Straight line Annual depreciation (B)	$90,000
Number of year from date of acquisition till Dec. 2017 (C) = (A/B)	2.67
Number of months from date of acquisition till Dec. 2017 (C*12)	32
Date of acquisition = Dec. 2017 - 32 months =	Apr. 2015

To determine

Concept Introduction:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $Doubledecliningdepreciationrate= \frac{2}{Expectedlifeinyears}$

Units of Production method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset is allocated on the basis of unit of production during its estimated life. The formula to calculate the deprecation under units of production method is as follows:

  $Depreciation=\frac{\left(Cost-SalvageValue\right)\times Unitsfortheperiod}{Estimatedlifeinunits}$

Requirement-c:

To Prepare:

The journal entry for sale of the equipment

Answer to Problem 6.27P

The journal entry for sale of the equipment is as follows:

Journal entries
Date	Account Titles	Debit	Credit
Dec. 31, 2017	Cash	$ 141,600
	Accumulated depreciation- Equipment	$ 180,000
	Loss on sale of equipment	$ 98,400
	Equipment		$ 420,000

Explanation of Solution

The journal entry for sale of the equipment is explained as follows:

Journal entries
Date	Account Titles	Debit	Credit
Dec. 31, 2017	Cash	$ 141,600
	Accumulated depreciation- Equipment	$ 180,000
	Loss on sale of equipment (420000-180000-141600)	$ 98,400
	Equipment		$ 420,000
	(Being equipment sold for cash)