Answer:
a. Determine the annual depreciation expense for each of the estimated five 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
depreciation expense per year = ($800,000 - $90,000) / 5 years = $142,000
End of year depreciation expense book value
1 $142,000 $658,000
2 $142,000 $516,000
3 $142,000 $374,000
4 $142,000 $232,000
and (b) the double-declining-balance method.
depreciation expense year 1 = 2 x 1/5 x $800,000 = $320,000
depreciation expense year 1 = 2 x 1/5 x $480,000 = $192,000
depreciation expense year 1 = 2 x 1/5 x $288,000 = $115,200
depreciation expense year 1 = 2 x 1/5 x $172,800 = $69,120
End of year depreciation expense book value
1 $320,000 $480,000
2 $192,000 $288,000
3 $115,200 $172,800
4 $69,120 $103,680
b. Journalize the entry to record the sale assuming the manager chose the double-declining-balance method.
Dr Cash 135,000
Dr Accumulated depreciation - lithographic equipment 696,320
Cr Lithographic equipment 800,000
Cr Gain on sale 31,320
c. Journalize the entry to record the sale in (b), assuming that the equipment was sold for $88,750 instead of $135,000.
Dr Cash 88,750
Dr Accumulated depreciation - lithographic equipment 696,320
Dr Loss on sale 14,930
Cr Lithographic equipment 800,000
