| 1 | On January 1, 2017, Aylmer Inc purchased a truck for $100,000. The truck has an estimated | |||||||
| useful life of 4 years, and a residual value of $10,000. | ||||||||
| REQUIRED: | ||||||||
| a. Calculate deprecaition, by year using the double-declining-balance method. | ||||||||
| b. If at the end of 2019, Aylmer traded the truck for another truck. Aylmer paid cash of $4,500 | ||||||||
| and the fair value of the truck was $15,000. What is the journal entry if the transaction has | ||||||||
| commercial substance? | ||||||||
a) Depreciation under double decline method is calculated below:
Given That
Cost of Truck = $100,000
Salavage Value = $10,000
Useful Life = 4 years
Depreciation for 2017 = 1/4 years *100*2 = 50%
Depreciation for 2017 = $100,000*50% = $50,000
b)Journal Entry for the transaction has commercial substance is as follows:
| Date | Account and Explanation | Debit($) | Credit($) |
|---|---|---|---|
| Ending 2019 | Accumulated Depreciation | 87,500 | |
| Loss on exchange | 2,000 | ||
| Truck | 15,000 | ||
| Cash | 4,500 | ||
| Truck | 100,000 | ||
| (Recorded the sale of assets with the commercial substance) |
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