On January 1, 20X5, a company purchased a new machine for $130,000. They expected to use the machine for 5 years, down to a residue of $6,500. i) Prepare the journal entry necessary to record the purchase of the equipment. ii) What is the book value of the equipment on December 31, 20X6 if the company uses the straight-line method of depreciation? iii) If the company uses the double declining balance method of depreciation, what is the depreciation expense for 20X6?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 20X5, a company purchased a new machine for $130,000. They expected to use the machine for 5 years, down to a residue of $6,500.
i) Prepare the
ii) What is the book value of the equipment on December 31, 20X6 if the company uses the straight-line method of
iii) If the company uses the double declining balance method of depreciation, what is the depreciation expense for 20X6?
iv) The company uses the straight-line method of depreciation and sells the equipment for $30,000 at the end of 4 years. State the journal entries to record the sale.
Assume the company uses the straight-line method of depreciation. After recording two full years of depreciation, they decide that the machine will last a total of 6 years, rather than 5. Residual value at the end of 6 years will be $8,000. What is the 20X7 depreciation expense?
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