Question

1. The following information will be used for 3 questions on the exam:

   Bridge Four Corporation purchase equipment for $120,000 on May 1, 2020. Bridge Four depreciates the equipment over 10 years using the double declining balance method of depreciation. Bridge Four estimates the equipment will have a salvage value of $5,000 at the end of the useful life. On December 31, 2021, Bridge Four entered into a transaction to exchange the equipment with another company. At the time of the exchange, the old equipment has an estimated fair market value of $90,000 and Bridge Four paid cash of $15,000.

   Which of the following statements is true?

   		The old asset has accumulated depreciation of $23,000 on the day of the exchange.
   		The old asset has an accumulated depreciation balance of $20,800 on the day of the exchange.
   		The old asset has a book value of $76,800 on the day of the exchange.
   		The old asset has accumulated depreciation of $19,167 on the day of the exchange.
   		The old asset has a book value of $83,200 on the day of the exchange.
   		The old asset has accumulated depreciation of $19,200 on the day of the exchange.
   		The old asset has a book value of 120,000 on the day of the exchange.
   		None of the other answer choices is correct.

Answer 1

Solution :

Answer : The Correct Answer is (e) The old asset has a book value of $83,200 on the day of the exchange.

Working :

Rate of Depreciation as per Double Decline Method :

Rate = (100% / Useful life) * 2

= (100% / 10) * 2

= 20%

Original Cost on May 01, 2020	$ 120,000
Depreciation for Year 2020 ($ 120,000 * 20% * 8/12)	$ 16.000
Balance at the end of Year 2020	$ 104.000
Dereciation for Year 2020 ($ 104,000 * 20%)	$ 20,800
Balance at the end of year 2020	$ 83,200
Total Accumulated Depreciation ($ 16,000 + $ 20,800)	$ 36,800

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