Question

Dexter Industries purchased packaging equipment on January 1 for $72,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3.

Instructions

Determine the amount of depreciation expense for the first year by

(a) the straight-line method

(b) the units-of-activity method

(c) the double-declining-balance method.

Exercise 2

The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.

1/1/2018 Purchased a used delivery truck for $28,000, paying cash.

4/15/2018 Paid garage $675 for miscellaneous repairs to the truck.

12/31/2018 Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $5,000 for the truck.

3/31/2019 Sold the used delivery truck purchased for $15,000. (Record depreciation to date for the truck.)

Answer 1

Journal entry

	Depreciation expense
Straight line (72000-4500/3)	22500
Units of production (72000-4500/18000*7600)	28500
Double decline 72000*2/6	24000

2) Journal entry

Date	General Journal	Debit	Credit
1/1	Delivery truck	28000
	Cash		28000
4/15	Repairs expense	675
	Cash		675
12/13	Depreciation expense (28000*40%)	11200
	Accumulated depreciation-Delivery truck		11200
3/31	Depreciation expense (28000*60%*40%*3/12)	1680
	Accumulated depreciation-Delivery truck		1680
3/31	Cash	15000
	Accumulated depreciation-Delivery truck (11200+1680)	12880
	Loss on sale of delivery truck	120
	Delivery truck		28000