Calculate depreciation under alternative methods and account for disposal of an asset.
A&W Root Beer Company bought new brewery equipment on January 1, 2008, for $64,000. The company expects the equipment to have a useful life of 8 years and a salvage value of $8,000. The company's fiscal year ends on December 31.
Required
a. Calculate the depreciation expense for the fiscal years 2008 and 2009 using each of the following methods:
1. Straight-line method
2. Double-declining balance method
b. Assume that the company decided to use the double-declining balance method and that the brewery equipment was sold at the end of December 2009, for $42,000. 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?