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