Gidley Inc. purchased a piece of equipment on January 1, 2014. The following information is available for

Question:

Gidley Inc. purchased a piece of equipment on January 1, 2014. The following information is available for this purchase:

Purchase price ........$950,000

Transportation ........$100,000a

Installation ..........$130,000b

Salvage value .........$ 50,000

Useful life ........... 4 years

a Included in the transportation cost is $1,000 for insurance covering the shipment of the equipment to Gidley.

b Included in the cost of installation is $80,000 in wages paid to employees who helped install the equipment.

REQUIRED:

a. Compute the cost of the fixed asset that should be capitalized.

b. Prepare the entry to record depreciation expense for the year ended December 31, 2014, assuming the company uses each of the following:

(1) Double-declining-balance depreciation method

(2) Straight-line depreciation method

c. Assuming that the equipment was sold on January 1, 2015, for $250,000, prepare the entry to record the sale of the equipment using each of the following methods:

(1) Double-declining-balance depreciation method

(2) Straight-line depreciation method

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...