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25 April, 19:40

Assume that TarMart purchased equipment at the beginning of fiscal year 2016 for $480,000 cash. The equipment had an estimated useful life of 8 years and a residual value of $30,000.

1. What would depreciation expense be for year 3 under the straight-line method?

2. What would depreciation expense be for year 3 under the double-declining balance method?

3. What is the first year in which depreciation expense under the straight-line method is higher than under the declining balance 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.

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  1. 25 April, 22:57
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    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
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