# (Solved Homework): I need that the question "e".Earthmoving equipment is purchased by a construction company for \$750000….

I need that the question “e”.Earthmoving equipment is purchased by a construction company for \$750000. Using five year life and salvage value of %5 of the equipment’s first cost, determine the following: a. Straight-line depreciation expense per year. b. Book value of the equipment using straight-line at the end of five years. c. Annual depreciation expense for each year using MACRS methods. d. Book value of the equipment for the five years using MACRS. e. Show the entries in the Accounting equation for straight line and MACRS if the equipment is sold at the end of fourth year for \$300000. What are the tax consequence?

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e. Straight line method:

1. Year 0 – Purchase of equipment

Earthmoving Equipment (Asset) A/c             Dr.     \$750,000

To Cash/bank                                                        \$750,000

2. Each Year 1-4 Depreciation booking (750,000*(100-5)%/5)

Depreciation A/c                Dr.               \$142,500

To Provision for Depreciation A/c              \$142,500

3. Entry for sale:

Cash A/c                        Dr.             \$3,00,000

Provision for Depreciation A/c    Dr. \$570,000 (142500*4)

To Earth moving Equipment A/c      \$750,000

To Profit on sale of Asset A/c          \$120,000

Long term captal gain tax will be charged on \$120,000.

MACRS Method:

1. Year 0 – Purchase of equipment

Earthmoving Equipment (Asset) A/c             Dr.     \$750,000

To Cash/bank                                                        \$750,000

2. Year 1 Depreciation booking (750,000/5*200%)

Depreciation A/c                Dr.               \$300,000

To Provision for Depreciation A/c              \$300,000

3. Year 2 Depreciation booking ((750,000-300,000)/5*200%)

Depreciation A/c                Dr.               \$180,000

To Provision for Depreciation A/c              \$180,000

4. Year 3 Depreciation booking ((750,000-300,000-180,000)/5*200%)

Depreciation A/c                Dr.               \$108,000

To Provision for Depreciation A/c              \$108,000

5. Year 4 Depreciation booking ((750,000-300,000-180,000-108,000)/5*200%)

Depreciation A/c                Dr.               \$64,800

To Provision for Depreciation A/c              \$64,800

6. Entry for sale:

Cash A/c                        Dr.             \$3,00,000

Provision for Depreciation A/c    Dr. \$652,800 (300000+180000+108000+64800)

To Earth moving Equipment A/c      \$750,000

To Profit on sale of Asset A/c          \$202,800

Long term captal gain tax will be charged on \$202,800.

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