New lithographic equipment, acquired at a cost of $800,000 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $90,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year.On March 4 of Year 5, the equipment was sold for $135,000.Instructions1. 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 and (b) the double-declining-balance method. The following columnar headings are suggested for each schedule: Year Depreciation Accumulated Book Value, Expense Depreciation, End of Year End of Year2. Journalize the entry to record the sale assuming that the manager chose the doubledeclining- balance method.3. Journalize the entry to record the sale in (2) assuming that the equipment was sold for $88,750 instead of $135,000.
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.
New lithographic equipment, acquired at a cost of $800,000 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $90,000. The manager requested information regarding the effect of alternative methods on the amount of
On March 4 of Year 5, the equipment was sold for $135,000.
Instructions
1. Determine the annual depreciation expense for each of the estimated five years of use, the
Year Depreciation Accumulated Book Value,
Expense Depreciation, End of Year
End of Year
2.
3. Journalize the entry to record the sale in (2) assuming that the equipment was sold for $88,750 instead of $135,000.
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