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. In 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:

Year Depreciation Expenses Accumulated Dep, end of year Book Value, 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: 0% 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 a. Accumulated Depreciation, End of Year Depreciation Expense Book Value, End of Year 1 2 3 4 b. 1 2 3 4 Assets Statement of Cash Flows 2. 3. Cash + Equipment - Balance Sheet = Liabilities Accumulated Depreciation = + + Stockholders' Equity Retained Earnings Income Statement