Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance

Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 16 years and an estimated residual value of $60,000.

a. What was the depreciation for the first year?
b. Assuming the equipment was sold at the end of the second year for $480,000, determine the gain or loss on the sale of the equipment.
c. Journalize the entry to record the sale.


Answer:
a. $75,000 = $600,000 × [(1/16) × 2)] = $600,000 × 12.5%
b. $20,625 gain, computed as follows:













Cost……………………………………………………… $600,000
Less: First-year depreciation…………………… (75,000)
Second-year depreciation………………… (65,625) [($600,000 – $75,000) × 12.5%]
Book value at end of second year……………… $459,375
Gain on sale ($480,000 – $459,375) = $20,625
c.
 Cash 480,000
Accumulated Depreciation—Equipment 140,625
Equipment 600,000
Gain on Sale of Equipment 20,625




Glacier Mining Co. acquired mineral rights for $494,000,000. The mineral deposit is estimated at 475,000,000 tons. During the current year, 31,500,000 tons were mined and sold.

a. Determine the depletion rate.
b. Determine the amount of depletion expense for the current year.
c. Journalize the adjusting entry on December 31 to recognize the depletion expense.


Answer:
a. $1.04 per ton = $494,000,000 ÷ 475,000,000 tons
b. $32,760,000 = 31,500,000 tons × $1.04 per ton


c.
 Dec. 31 Depletion Expense 32,760,000
Accumulated Depletion 32,760,000
Depletion of mineral deposit.