Answer:
1. What would depreciation expense be for year 3 under the straight-line method?
= ($480,000 - $30,000) / 8 = $56,250
same depreciation expense for every year
2. What would depreciation expense be for year 3 under the double-declining balance method?
depreciation year 1 = 2 x 1/8 x $480,000 = $120,000
depreciation year 2 = 2 x 1/8 x $360,000 = $90,000
depreciation year 3 = 2 x 1/8 x $270,000 = $67,500
3. What is the first year in which depreciation expense under the straight-line method is higher than under the declining balance method?
under double declining method
depreciation year 4 = 2 x 1/8 x $202,500 = $50,625
In year 4, depreciation expense wil be higher using the straight line method.
4. Assume TarMart uses the straight-line depreciation method for its equipment. Also assume that at fiscal year-end 2020, TarMart sold the equipment purchased at the beginning of fiscal year 2016 for $200,000 cash. Prepare the journal entry to record the sale of the equipment at year-end 2020.
Dr Cash 200,000
Dr Accumulated depreciation - equipment 225,000
Dr Loss on sale of equipment 55,000
Cr Equipment 480,000
Explanation:
purchase cost $480,000
useful life 8 years
salvage value $30,000
