Old McDonald Farm acquired a new tractor for its farm at a cost of $40,000. The tractor is expected to be used on the farm for 10 years. At the end of 10 years, Old McDonald assumes the tractor will have a resale value of $4,000.

McDonald uses an accelerated method of depreciation to allocate the cost of assets to each year of their useful lives. In particular, McDonald uses the double-declining-balance method.

Questions:

1. What will be the amount of depreciation expense recorded in year 1 and year 2? Show your work to receive partial credit in the case of mistakes.

2. Give the journal entries that would be made for year 1 and year 2 to record depreciation.

Date	Accounts	Debit	Credit

3. What will be the book value of the tractor at the end of the 2nd year of use? Briefly comment on the relationship between the book value and what the tractor will actually be worth at that time.

4. Regardless of your answer to part 3, assume the following balances at the end of year 2:

Tractor (asset account) $40,000 (debit)

Accumulated depreciation - tractor $14,400 (credit)

If McDonald sold the tractor to Dudley Farms at the end of the second year for $30,000, how would McDonald record that transaction in their accounting records? Briefly explain your thinking and show your calculations.

Date	Accounts	Debit	Credit