Part 1

New tire re-treading equipment, acquired at a cost of $120,000 on 1/2/06, has an estimated useful life of 5 years and an estimated residual value of $10,000. The manager requested information regarding the alternative methods on the amount of depreciation expense each year.

Instructions: Determine the amount of depreciation expense, accumulated depreciation, and book value for the years ended December 31, 2006, 2007, 2008, 2009, 2010 by

the straight line method

the double declining balance method

units of production

Assume that it is estimated that the equipment will be used for 10,000 operating hours. (2,500 (06), 3,000 (07), 2,750 (08), 1,500 (09), 250 (2010).

Part 2

Assume that the manager decided to use the double declining balance method for the tire re-treading equipment above. Record the following journal entries:

1.On 4/15/2006 the company paid $1,000 for an ordinary repair.

2.On 1/1/07 the company paid $10,000 for a major engine overhaul.

3.On 7/01/2009 the company sold the equipment for $20,000.