New lithographic equipment, acquired at a cost of $859,200 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 $96,660. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.

Required:
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 and (b) the double-declining-balance method. Round your answers to the nearest whole dollar.
b. Journalize the entry to record the sale assuming the manager chose the double-declining-balance method.

Answer and Explanation:

The calculation and the journal entry is given below:

a)

Depreciation expense= (Original cost - Residual Value) ÷ Estimated useful life

= $(859200 - 96660) ÷ 5

= $152508

Year     Depreciation Expense Accumulated depreciation   Book Value,

1            $152508                           $152508                           $706692

2            152508                         305016                            554184

3             152508                            457524                           401676

4              152508                            610032                             249168

5          152508                           762540                              96660

b)

Depreciation rate is

= 100 ÷ 5 × 2

= 40%

Year     Depreciation Expense Accumulated depreciation   Book Value,

1  $343680                               $343680                            $515520

( 40% of 859200)

2       206208                                   549888                             309312

(40% of 515520)

3 123725                                     673613                        185587

4 74235                                      747848                         111352

5  14692                                      762540                               96660

(111352-96660)

c)

The journal entry is  

Cash  $141422.00  

Accumulated depreciation- Equipment  $747848.00  

     To Gain on sale of Equipment   $30070.00

      To Equipment   $859200.00  

(Being the sale of equipment is recorded)      

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