Hope Construction purchased new equipment on January 1, 2011, for $55,000. The company expects the equipment to

Question:

Hope Construction purchased new equipment on January 1, 2011, for $55,000. The company expects the equipment to have a useful life of five years and no salvage value. The company’s fiscal year ends on December 31.

Requirements

1. Calculate the depreciation expense for the fiscal years 2011 and 2012 using each of the following methods:

a. Straight-line method

b. Double-declining balance method

2. Hope Construction sold the equipment on January 1, 2013, for $33,000. What was the gain or loss on the sale using each of the depreciation methods? On which financial statement would the gain or loss appear?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...