Gidley, Inc. purchased a piece of equipment on January 1, 2011.

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, 2011, assuming the company uses
(1) Double-declining-balance depreciation method
(2) Straight-line depreciation method 
c. Assuming that the equipment was sold on January 1, 2012, for $250,000, prepare the entry to record the sale of the equ
(1) Double-declining-balance depreciation method 
(2) Straight-line depreciation method 
rmation is available for this purchase:

Answer A
Cost of Fixed Asset
Purchase Price
add: transportation cost
t of the equipment to Gidley.  add: installation cost
elped install the equipment.  Total Cost of Fixed Asset

Answer B
31, 2011, assuming the company uses each of the following: (1) Double-declining-balance depreciation method
Depreciation rate = 1/ life * 2= 1/4 years * 2 = 50 %
Depreciation = 50 % of $ 1,180,000 = $ 590,000
e the entry to record the sale of the equipment using each of the following methods:
Depreciation Expense
Accumulated Depreciation

(2) Straight-line depreciation method 

Depreciation = (Cost less Salvage Value)/Life
Depreciation = ($ 1,180,000 less $ 50,000)/4 = $ 282,500

Depreciation Expense
Accumulated Depreciation

Answer C
(1) Double-declining-balance depreciation method
Cash
Accumulated Depreciation
Loss on sale of Equipment
Equipment

(2) Straight-line depreciation method 

Cash
Accumulated Depreciation
Loss on sale of Equipment
Equipment
 $ 950,000
$ 100,000
$ 130,000
$ 1,180,000

alance depreciation method

life * 2= 1/4 years * 2 = 50 %
$ 1,180,000 = $ 590,000

$ 590,000
$ 590,000

ciation method 
ss Salvage Value)/Life
0,000 less $ 50,000)/4 = $ 282,500

$ 282,500
$ 282,500

alance depreciation method

$ 250,000
$ 590,000
$ 340,000 ($ 1,180,000 less $ 590,000 depreciation less $ 250,000 sale value)
$ 1,180,000

ciation method 
$ 250,000
$ 282,500
$ 647,500 ($ 1,180,000 less $ 282,500 depreciation less $ 250,000 sale value)
$ 1,180,000