The Rialto Theatre purchased a new projector costing $82,000 on January 1, 2018. Because of changing technologies, the projector is estimated to last four years after which it will be obsolete and have a salvage value of $4,000 as a collectors’ item. Compute the depreciation expense for 2018 using: a. The straight-line method b. Double-declining-balance method c Now assume that the asset is sold at the end of the second year (December 31, 2019) for $30,000, while the Double Declining Balance method is used.

a. 19,500

b. $20,500

c. Gain of $9,500

Explanation:

a.

Straight Line depreciation is a method of depreciation in which the cost of the asset net of residual value is divided over useful life.

Depreciation rate = ( Cost - Salvage Value ) / useful life = ($82,000 - $4,000) / 4 = $19,500

Depreciation charged in 2018 = $19,500

Depreciation charged in 2019 = $19,500

Accumulate depreciation as on December 31, 2019 = $39,000

b.

In Double Declining method Accelerated depreciation is charged. The depreciation charged in this method is double of the charged in straight-line depreciation method.

Depreciation rate = 2 x (1/useful life) x100 = 2 x (1/4 years) x100 = 50%

50% will be charged to Book value of the projector.

Depreciation charged in 2018 = $82,000 x 50% = $41,000

Depreciation charged in 2019 = ( $82,000 - $41,000 ) x 50% = $20,500

Accumulate depreciation as on December 31, 2019 = $41,000 + $20,500 = $61,500

Book value as on December 31, 2019 = $20,500

c.

Sale proceeds = $30,000

Gain on sale = $30,000 - $20,500 = $9,500

There is a gain of $9,500 based on Double declining method

It recorded as follow

Dr. Cash                                     $30,000

Dr.Accumulated Depreciation $61,500

Cr. Gain on sale                         $9,500

Cr. Projector                              $82,000

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