New tire retreading equipment, acquired at a cost of $160,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of $16,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year.
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 declining-balance method (at twice the straight-line rate). The following columnar headings are suggested for each schedule:
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Depreciation
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Accumulated Depreciation,
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Book Value,
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Year
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Expense
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End of Year
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End of Year
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2. On the basis of the data presented to the manager, the declining-balance method was selected. In the first week of the fourth year, the equipment was sold for $26,000. Record the entry for the sale.
3. Record the entry for the sale, assuming a sales price of $17,400.