Golden Sales has bought $135,000 in fixed assets on January 1st associated with sales equipment. The residual value of these assets is estimated at $10,000 after they service their 4 year service life. Golden Sales managers want to evaluate the options of depreciation.
a) Compute the annual straight-line depreciation and provide the depreciation journal entry to be posted at the end of each of the years.
b) Write the journal entries for each year of the service life for these assets using the double-declining balance method.

Question

16-12-2022
Mathematics

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Golden Sales has bought $135,000 in fixed assets on January 1st associated with sales equipment. The residual value of these assets is estimated at $10,000 after they service their 4 year service life. Golden Sales managers want to evaluate the options of depreciation.
a) Compute the annual straight-line depreciation and provide the depreciation journal entry to be posted at the end of each of the years.
b) Write the journal entries for each year of the service life for these assets using the double-declining balance method.

Answer :

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debjitbhowal4568 debjitbhowal4568 · Answer 1 · 2022-12-20T13:24:35-05:00

a) To compute the annual straight-line depreciation, we need to subtract the residual value of the assets ($10,000) from the cost of the assets ($135,000) and divide the result by the number of years of the assets' service life (4 years):

Annual straight-line depreciation = ($135,000 - $10,000) / 4 years = $32,500

At the end of each year, the following journal entry would be posted to record the depreciation of the assets:

Debit: Depreciation Expense $32,500

Credit: Accumulated Depreciation $32,500

b) To compute the double-declining balance method, we need to first determine the double-declining balance rate by dividing 2 by the number of years of the assets' service life (4 years):

Double-declining balance rate = 2 / 4 years = 50%

The double-declining balance method calculates depreciation using the following formula:

Depreciation Expense = (Cost of Asset - Accumulated Depreciation) x Double-Declining Balance Rate

At the end of the first year, the following journal entry would be posted to record the depreciation of the assets using the double-declining balance method:

Debit: Depreciation Expense $67,500

Credit: Accumulated Depreciation $67,500

Where:

Depreciation Expense = ($135,000 - $0) x 50% = $67,500

At the end of the second year, the following journal entry would be posted to record the depreciation of the assets using the double-declining balance method:

Debit: Depreciation Expense $33,750

Credit: Accumulated Depreciation $33,750

Where:

Depreciation Expense = ($135,000 - $67,500) x 50% = $33,750

At the end of the third year, the following journal entry would be posted to record the depreciation of the assets using the double-declining balance method:

Debit: Depreciation Expense $16,875

Credit: Accumulated Depreciation $16,875

Where:

Depreciation Expense = ($135,000 - $101,250) x 50% = $16,875

At the end of the fourth year, the following journal entry would be posted to record the depreciation of the assets using the double-declining balance method:

Debit: Depreciation Expense $8,438

Credit: Accumulated Depreciation $8,438

Where:

Depreciation Expense = ($135,000 - $118,125) x 50% = $8,438

Note: The double-declining balance method results in higher depreciation expense in the earlier years of the assets' service life, compared to the straight-line method. This is because the double-declining balance method uses a higher depreciation rate in the early years and a lower rate in the later years. The choice of depreciation method will depend on the specific circumstances and needs of the company.

To learn more about depreciation, visit:

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