ABC Company purchased a new equipment on January 1, 20X1 for $52 million. The estimated useful life is ten years and the residual value is $2 million.

1. Compute depreciation expense for year 20X1 and 20X2

a. Using straight line method

b. Using double declining balance method

2. If the equipment is expected to provide more benefits during the early years and less during the later years of is useful life, which of the two depreciation methods would be more consistent with the matching concept?

3. Assume that the company uses straight line deprecation method. It sells the equipment on January 1, 20X3 for $40 million.

a. How much is the gain or loss on the sale of the equipment?

b. Record all transactions related to the equipment.

• purchase on January 1, 20X1
• depreciation for 20X1 and for 20X2
• sale of equipment on January 1, 20X3