Golden Sales has bought $135,000 in fixed assets on January 1st associated with sales equipment. The residual value of these assets is estimated at $10,000 after they service their 4 year service life. Golden Sales managers want to evaluate the options of depreciation. a. Compute the annual straight-line depreciation.
Provide the sample depreciation journal entry to be posted at the end of each of the years.
b. Prepare the journal entries for each year of the service life for these assets using the double-declining balance method.
1st year, Dec. 31
2nd year, Dec. 31
3rd year, Dec. 31
4th year, Dec. 31

Golden Sales

a. Annual Straight-line Depreciation = $31,250

Sample Depreciation Journal Entries:

Journal Entry:

1st year, Dec. 31:

Debit Depreciation Expense $31,250

Credit Accumulated Depreciation $31,250

2nd year, Dec. 31:

Debit Depreciation Expense $31,250

Credit Accumulated Depreciation $31,250

3rd year, Dec. 31:

Debit Depreciation Expense $31,250

Credit Accumulated Depreciation $31,250

4th year, Dec. 31:

Debit Depreciation Expense $31,250

Credit Accumulated Depreciation $31,250

b. Journal Entries (Double-declining-balance method)

1st year, Dec. 31

Debit Depreciation Expense $67,500

Credit Accumulated Depreciation $67,500

2nd year, Dec. 31

Debit Depreciation Expense $33,750

Credit Accumulated Depreciation $33,750

3rd year, Dec. 31

Debit Depreciation Expense $16,875

Credit Accumulated Depreciation $16,875

4th year, Dec. 31

Debit Depreciation Expense $6,875

Credit Accumulated Depreciation $6,875

Explanation:

a) Data and Calculations:

Fixed assets bought on January 1 = $135,000

Estimated service life = 4 years

Estimated residual value = $10,000

Depreciable amount = $125,000 ($135,000 - $10,000)

Annual Straight-line Depreciation = $31,250 ($125,000/4)

b. Double-declining balance method:

Depreciation rate = 100%/4 * 2 = 50%

Year 1 Depreciation = $67,500 ($135,000 * 50%)

Year 2 Depreciation = $33,750 ($67,500 * 50%)

Year 3 Depreciation = $16,875 ($33,750 * 50%)

Year 4 Depreciation = $6,875 ($16,875 - $10,000)

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