Question 3 It is now March 31, 2008, and you are contemplating the disposal of an old piece of equipment. The equipment cost $36,000 and has accumulated depreciation of $20,000 at December 31 of the prior calendar year-end. The equipment is being depreciated over 10 years down to a residue of $6,000 Record the sale of the equipment at March 31, 2008 assuming: a) The equipment is discarded b) The equipment is sold for $6,000, $10,000 or $20, 000. c) The equipment is exchanged for new, similar equipment having a cost of $42,000. Trade-in-Allowance for the old equipment is $18,000.
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.
Question 3
It is now March 31, 2008, and you are contemplating the disposal of an old piece of equipment.
The equipment cost $36,000 and has
prior calendar year-end. The equipment is being depreciated over 10 years down to a residue of
$6,000
Record the sale of the equipment at March 31, 2008 assuming:
a) The equipment is discarded
b) The equipment is sold for $6,000, $10,000 or $20, 000.
c) The equipment is exchanged for new, similar equipment having a cost of $42,000.
Trade-in-Allowance for the old equipment is $18,000.
Question 4
On January 1, 20X2, The GenKota Winery purchased a new bottling system. The system has an
expected life of 5 years. The system cost $325,000. Shipping, installation, and set up were an
additional $35,000. At the end of the useful life, Julie Hayes, chief accountant for GenKota,
expects to dispose of the bottling system for $26,000. She further anticipates total output of
668,000 bottles over the useful life. The output for 20x2 was 108,000 bottles, 130,000 (20x3),
150,000 (20X4), 160,000 (20X5), and 120,000 (20X6).
i) Prepare depreciation schedules assuming use of the:
(a) straight-line depreciation method
(b) units-of -production depreciation method
(c) double-declining balance depreciation method
3
Question 5
Purdue Company purchased equipment on April 1, 2012 for $270,000 cash. The equipment was
expected to have a useful life of 3 years or 18,000 operating hours and a residual value of $9,000.
The equipment was used for 7,500 hours during 2012, 5,500 in 2013, 4,000 hours in 2014 and
1,000 hours in 2015.
i) Prepare the journal entries to record the purchase of the equipment on April 1, 2012
ii) Determine the depreciation expense for the years ended December 31, 2012, 2013, 2014
and 2015 by (a) the straight-line method, (b) the unit-of-production method & (c) the
double-declining method.
iii) Prepare the balance sheet extract for 2012, 2013, and 2014
Question 6
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 depreciation?
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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