Calculate depreciation under alternative methods and account for disposal of an asset.( LO 2,5)
Bella Interiors purchased a new sewing machine on January 2, 2007, for 948,000. The company expects the machine to have a useful life of 5 years and a salvage value of $3,000. The company’s fiscal year ends on December 31.
Required
a. Calculate the depreciation expense for the fiscal years 2007 and 2008 using each of the following methods:
1. Straight-line method
2. Double-declining balance method
b. Assume that Bella Interiors decided to use the straight-line method and that the sewing machine was sold at the end of December 2009, for $27,000. What was the gain or loss on the sale? On which financial statement would the gain or loss appear? What information does this accounting calculation provide for future decisions?