New lithographic equipment, acquired at a cost of $175,000 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $15,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double declining balance method was selected.
In the first week of the fifth year, the equipment was traded in for similar equipment priced at $240,000. The trade in allowance on the old equipment was $25,000, cash of $15,000 was paid, and a note payable was issued for the balance.
1. Determine the annual depreciation expense for each of the estimated five 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 double declining balance method. The following columnar headings are suggested for each schedule:
Year Depreciation Expense Accumulated Depreciation, End of Year Book Value, End of Year
2. For financial reporting purposes, determine the cost of the new equipment acquired in the exchange.
3. Journalize the entry to record the exchange.
4. Journalize the entry to record the exchange, assuming that the trade in allowance was $18,000 instead of $25,000