Question

In early 2017, Olds Ltd. (Olds) purchased new computer equipment. Olds does cutting-edge graphic design work and requires highly sophisticated computer hardware and software. The new equipment cost $400,000 plus $20,000 in taxes (all of which is refundable), $25,000 for installation, $65,000 for training, and $75,000 for a three-year service contract on the equipment. Olds's management expects to be able to use the computer equipment for about four years, although with the passage of time the equipment will likely be less useful for more sophisticated work because better equipment becomes available very quickly.
Accordingly, management has decided to amortize the equipment using the declining balance method at a rate of 50 percent per year. Management has indicated that it hopes to be able to sell the equipment at the end of four years for $35,000.

Required:
a. Prepare the journal entry to record the purchase of the new equipment.
b. Prepare a depreciation schedule showing the depreciation expense for each of the four years Olds expects to use the computer equipment and the carrying amount of the equipment at the end of each year.
c. Suppose the computer equipment was sold at the end of 2019 for $55,000. Prepare the journal entry to record the sale and any other journal entries required with respect to the computer equipment in 2019.



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  • CreatedFebruary 26, 2015
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