(Calculation of gains and losses on sale of capital assets, LO 3, 6) On July 4, 2003 Vroomanton Inc. (Vroomanton) purchased new equipment for its print shop.

Vroomanton’s accountant determined that the capital cost of the equipment was

$34,000. The accountant also estimated that the useful life of equipment would be five years and the residual value $4,000. Assume that Vroomanton took a full year of amortization for the equipment in the year ended June 30, 2004.

Required:

a. Prepare an amortization schedule for the new equipment, assuming the use of straight-line amortization. Set up your amortization schedule like Figure 9-4 in the chapter (page 511).

b. Prepare an amortization schedule for the new equipment assuming the use of declining-balance amortization using an amortization rate of 40%. Set up your amortization schedule like Figure 9-5 in the chapter (page 512).

c. Assume that on June 30 2007, after the amortization expense had been recorded for the year, Vroomanton sold the equipment for $11,000. Prepare the journal entry that is required to record the sale assuming that:

i. the amortization schedule in

(a) was used, and ii. the amortization schedule in

(b) was used.

d. Explain the reason for the different income statement effects for the journal entries you recorded in (c).