Question
Mon-Royal Co. purchased equipment on January 1, 2017 for $3,000,000 and paid cash for $2,000,000 and issued a 2-year note payable for the rest. Mon-Royal
Mon-Royal Co. purchased equipment on January 1, 2017 for $3,000,000 and paid cash for $2,000,000 and issued a 2-year note payable for the rest. Mon-Royal Co. also paid $20,000 cash for shipping and installation of the equipment. Other information Estimated useful life of the equipment at the time of purchase, 10 years. Estimated salvage (residual) value at the time of purchase, $320,000. The company uses the straight-line method of depreciation. The companys fiscal year coincides with the calendar year. On January 1, 2019 the equipment needed a major repair. The company paid $400,000 to repair the equipment. Based on an expert opinion, the repair will increase the useful life of the equipment for two years, however the residual value remains the same. On July 1, 2020 the company sold the equipment for $2,400,000 cash.
Assume for this part only, the company uses double-declining method of depreciation. Calculate the amount of depreciation expense for the year 2017 and 2018.
a.$483,200 for year 2017 and $604,000 for year 2018.
b.$500,000 for year 2017 and $400,000 for year 2018.
c.$604,000 for year 2017 and $483,200 for year 2018.
d.None.
The journal entry in 2020 to record the sale of the equipment is (consider that depreciation expense entry has been correctly recorded)
a.Dr. Impairment loss $2,400,000, Cr. Cash $270,000; Cr. Accumulated depreciation-equipment $2,130,000.
b.Dr. Depreciation expense 302,000, Cr. Accumulated depreciation-equipment 302,000.
c.Dr. Cash 2,400,000; Dr. Loss $96,000; Dr. Accumulated depreciation-equipment $924,000; Cr. Equipment $3,420,000.
d.Dr. Cash 2,400,000; Dr. Gain $96,000; Dr. Accumulated depreciation-equipment $924,000; Cr. Equipment $3,420,000.
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