Depreciation by two methods; sale of fixed asset

New tire retreading equipment, acquired at a cost of $140,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of $10,000. 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.

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n the first week of the fourth year, the equipment was sold for $23,300.

Instructions

1. Determine the annual depreciation expense for each of the estimated four 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:

Accumulated Depreciation, Book value, Year Depreciation Expense End of Year End of Year

2. Illustrate the effects on the accounts and financial statements of the sale.

3. Illustrate the effects on the accounts and financial statements of the sale, assuming a sale price of $15,250 instead of $23,300.

Problem 7-4 Name: Section: Score: 71% Key Code: 2 Instructions Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. A red asterisk (*) will appear in the column to the right of an incorrect answer. 1. Year Depreciation Expense Accumulated Depreciation, End of Year a. 1 2 3 4 $ 32,500 32,500 32,500 32,500 $ 32,500 65,000 97,500 130,000 $ 107,500 75,000 42,500 10,000 b. 1 2 3 4 $ 70,000 35,000 17,500 $ 70,000 105,000 122,500 $ 70,000 35,000 17,500 Assets 2. 3. Book Value, End of Year Statement of Cash Flows O $ 23,300 F 15,250 $ Cash 23,300 15,250 + Equipment $ (140,000) (140,000) Balance Sheet = Accumulated Depreciation = Balance Sheet Liabilities + + Stockholders' Equity Retained Earnings Income Statement