
Concept explainers
1. (a)
Straight-line
Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:
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
the annual depreciation expense, accumulated depreciation, and the book value for each of the estimated five years of use by the straight-line method.
1. (a)

Explanation of Solution
Determine the annual depreciation expense, accumulated depreciation, and the book value by straight-line method.
Year | Depreciation Expense (1) | Accumulated Depreciation, End of Year | Book Value, End of Year |
Year 1 | $142,000 | $142,000 | $658,000 |
Year 2 | $142,000 | $284,000 | $516,000 |
Year 3 | $142,000 | $426,000 | $374,000 |
Year 4 | $142,000 | $568,000 | $232,000 |
Year 5 | $142,000 | $710,000 | $90,000 |
Table (1)
Working notes:
Cost of the equipment= $800,000
Estimated residual value =$90,000
Estimated Useful Life =5 years
Notes (1):
Accumulated Depreciation for the current year is the sum total of the previous years’ depreciation expense.
Book value is the difference between the cost of the asset and the accumulated depreciation.
(b)
the annual depreciation expense, accumulated depreciation, and the book value for each of the estimated five years of use by double-declining-balance method.
(b)

Explanation of Solution
Determine the annual depreciation expense, accumulated depreciation, and the book value by double-declining-balance method.
Year | Depreciation Expense | Accumulated Depreciation, End of Year | Book Value, End of Year |
Year 1 | $320,000 | $420,000 | |
Year 2 | $512,000 | $288,000 | |
Year 3 | $627,200 | $172,800 | |
Year 4 | $696,320 | $103,680 | |
Year 5 | $13,680 (2) | $710,000 | $90,000 |
Table (2)
Notes (2):
Accumulated depreciation is the sum total of the previous years’ depreciation expense.
Book value is the difference between the cost of the asset and the accumulated depreciation.
The depreciation expense should not exceed the residual value of $90,000. Thus, it should be adjusted to make the book value of the equipment (cost less accumulated depreciation) equal to its residual value. Thus, the depreciation expense for Year 5 would be
2.
To
2.

Explanation of Solution
Journalize: the entry to record the sale under the double-declining-balance method.
Date | Account Title and Explanation | Post Ref | Debit ($) |
Credit ($) |
Cash | 135,000 | |||
Accumulated depreciation-Equipment | 696,320 | |||
Equipment | 800,000 | |||
Gain on Sale of Equipment | 31,320 | |||
(To record the sale of equipment.) |
Table (3)
Working note:
Calculate the gain or (loss) on the sale of equipment.
Title: Calculate the gain (loss) on sale of equipment | ||
Details | Amount ($) | Amount ($) |
Cash received on sale of equipment | 135,000 | |
Less: | ||
Cost of the equipment | 800,000 | |
Less: Accumulated Depreciation | (696,320) | |
Book Value of the equipment | (103,680) | |
Gain on sale of equipment | 31,320 |
Table (4)
- Cash is an asset, and it is increased by $135,000. Therefore, debit cash with $135,000.
- Accumulated depreciation-Equipment is a contra-asset with a normal credit balance. The decrease in accumulated depreciation increases the asset by $696,320. Therefore, debit Accumulated depreciation – Equipment by $696,320.
- Gain on Sale of Equipment is a gain for the company, and it increases the
stockholder’s equity by $31,320. Therefore, credit Gain on Sale of Equipment by $31,320.
- Equipment is an asset, and it is decreased by $800,000. Therefore, credit Equipment account by $800,000.
3.
To journalize: the entry to record the sale of equipment for $88,750 under the double-declining-balance method.
3.

Explanation of Solution
Journalize: the entry to record the sale under the double-declining-balance method.
Date | Account Title and Explanation | Post Ref | Debit ($) |
Credit ($) |
Cash | 88,750 | |||
Accumulated depreciation-Equipment | 696,320 | |||
Loss on Sale of Equipment | 14,930 | |||
Equipment | 800,000 | |||
(To record the sale of equipment.) |
Table (5)
Working note:
Calculate the gain or (loss) on the sale of equipment.
Title: Calculate the gain (loss) on sale of equipment | ||
Details | Amount ($) | Amount ($) |
Cash received on sale of equipment | 88,750 | |
Less: | ||
Cost of the equipment | 800,000 | |
Less: Accumulated Depreciation | (696,320) | |
Book Value of the equipment | (103,680) | |
Loss on sale of equipment | (14,930) |
Table (6)
- Cash is an asset, and it is increased by $88,750. Therefore, debit cash with $88,750.
- Accumulated depreciation-Equipment is a contra-asset with a normal credit balance. The decrease in accumulated depreciation increases the asset by $696,320. Therefore, debit Accumulated depreciation – Equipment by $696,320.
- Loss on Sale of Equipment is a loss for the company, and it decreases the stockholder’s equity by $14,930. Therefore, debit Loss on Sale of Equipment by $14,930.
- Equipment is an asset, and it is decreased by $800,000. Therefore, credit Equipment account by $800,000
Want to see more full solutions like this?
Chapter 10 Solutions
Working Papers, Chapters 1-17 for Warren/Reeve/Duchac's Accounting, 26th and Financial Accounting, 14th
- provide answer of this General accounting questionarrow_forwardOn January 1, 2024, Packard Corporation leased equipment to Hewlitt Company. The lease term is 9 years. The first payment of $457,000 was made on January 1, 2024. Remaining payments are made on December 31 each year, beginning with December 31, 2024. The equipment cost Packard Corporation $2,956,548. The present value of the lease payments is $2,986,412. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 9%, what will be the balance reported as a liability by Hewlitt in its balance sheet on December 31, 2025?arrow_forwardWhat is the cost of goods sold on these financial accounting question?arrow_forward
- Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: Expense Date Amount Attorney fees for articles of incorporation February 10 $ 40,500 Stock issuance costs March 1-March 30 wages March 1-March 30 rent April 1-May 30 wages Note: Leave no answer blank. Enter zero if applicable. March 30 6,550 March 30 2,850 April 1 May 30 24,000 16,375 b. What amount of the start-up costs and organizational expenditures may the corporation immediately expense in year 1 (excluding the portion of the expenditures that are amortized over 180 months)? Start-up costs expensed Organizational expenditures expensedarrow_forwardGeneral accountingarrow_forwardAfter several profitable years running her business, Ingrid decided to acquire the assets of a small competing business. On May 1 of year 1, Ingrid acquired the competing business for $354,000. Ingrid allocated $59,000 of the purchase price to goodwill. Ingrid's business reports its taxable income on a calendar-year basis. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. a. How much amortization expense on the goodwill can Ingrid deduct in year 1, year 2, and year 3? Year 1 Deductible Amortization Expense Year 2 Year 3arrow_forward
- Chapter 19 Homework 15 0.87 points eBook Saved Exercise 19-20 (Algo) Contribution margin ratio by sales territory LO A1 Help Save & Exit Submit Check my work Big Bikes manufactures and sells mountain bikes in two sales territories, West Coast and East Coast. Information for the year follows. The company sold 550 bikes in each territory. Per unit Sales price Variable cost of goods sold West Coast $ 1,500 East Coast $ 1,440 830 70 830 Variable selling and administrative expenses 160 Ask a. Compute contribution margin (in dollars) for each sales territory. b. Compute contribution margin ratio for each sales territory. Which sales territory has the better contribution margin ratio? Print Complete this question by entering your answers in the tabs below. References Required A Required B Compute contribution margin (in dollars) for each sales territory. Sales Variable expenses Variable cost of goods sold Variable selling and administrative expenses Contribution margin West Coast East Coast…arrow_forwardChapter 19 Homework 15 0.87 points eBook Saved Exercise 19-20 (Algo) Contribution margin ratio by sales territory LO A1 Help Save & Exit Submit Check my work Big Bikes manufactures and sells mountain bikes in two sales territories, West Coast and East Coast. Information for the year follows. The company sold 550 bikes in each territory. Per unit Sales price Variable cost of goods sold West Coast $ 1,500 East Coast $ 1,440 830 70 830 Variable selling and administrative expenses 160 Ask a. Compute contribution margin (in dollars) for each sales territory. b. Compute contribution margin ratio for each sales territory. Which sales territory has the better contribution margin ratio? Print Complete this question by entering your answers in the tabs below. References Required A Required B Compute contribution margin (in dollars) for each sales territory. Sales Variable expenses Variable cost of goods sold Variable selling and administrative expenses Contribution margin West Coast East Coast…arrow_forwardDetermine the gross margin of this financial accounting questionarrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning


