Reference no: EM132864907
ABC Inc. is a very mature corporation. On Feb. 1, 2014, the company bought the equipment at $1,000,000 by paying the cash amount of $500,000 and borrowing $500,000 from a bank. In addition, the installation cost of $5,000 was also necessary to make the equipment ready for its intended use. The installation cost was incurred on Feb. 1, 2014. At the time of the purchase, the residual value was estimated at $50,000 and the useful life was estimated to be 5 years. On Dec. 31, 2016, the company sold the equipment and received $200,000 cash. It used part of the money, exactly, $145,000 to repay the remaining balance of the bank loan on the equipment. The company has a December 31 year-end.
Problem a) Assuming that the company uses the double-declining balance method for the depreciation of this equipment, how much depreciation expense should be reported on the income statement ended on Dec. 31, 2015?
Problem b) Assuming that the company uses the double-declining balance method for the depreciation of this equipment, how much gain or loss from the disposal of this equipment should be reported on the income statement ended on Dec. 31, 2016?
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