The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $130,83

Question

The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $130,830. It is estimated that the machine will have a $7,350 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 61,740, and its total production is estimated at 771,750 units. During 2014, the machine was operated 8,820 hours and produced 80,850 units. During 2015, the machine was operated 8,085 hours and produced 70,560 units.

Compute depreciation expense on the machine for the year ending December 31, 2014, and the year ending December 31, 2015, using the following methods. (Round answers to 0 decimal places, e.g. 45,892.)

2014

2015

2014

2015

$

$

$

$

$

$

$

$

(e) Double-declining-balance (twice the straight-line rate

Explanation / Answer

a. Straight Line depreciation rate = 1/7 = 14.29% b. Double declining rate = 2 x 14.29% = 28.57% c. Under Double declining method,if there is partial use of machine in first year, depreciation will be restricted to partial month. After first year normal method is applied. So, depreciation is calculated as follows: Year Beginning Book Value Depreciation rate Depreciation Expense Ending Book Value 2014 $       1,30,830 28.57% $ 21,805 $ 1,09,025 2015 $       1,09,025 28.57% $ 31,150 $     77,875 Working: Depreciation for 2014 = $ 1,30,830 x 28.57% x 7/12 = $       21,805 Depreciation for 2015 = $ 1,09,025 x 28.57% = $       31,150 Thus, 2014 2015 Depreciation Expense- Double declining balance method $     21,805 $ 31,150

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