The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $206,48
ID: 2446494 • Letter: T
Question
The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $206,480. It is estimated that the machine will have a $11,600 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 97,440, and its total production is estimated at 1,218,000 units. During 2014, the machine was operated 13,920 hours and produced 127,600 units. During 2015, the machine was operated 12,760 hours and produced 111,360 units.
Compute depreciation expense on the machine for the year ending December 31, 2014, and the year ending December 31, 2015, using the following method:
a.Sum-of-the-years'-digits 2014 2015
Explanation / Answer
Sum of years digit = 1 + 2 + 3 + 4 + 5 + 6 + 7 = 28
Depreciable base = Cost - Salvage value = $(206,480 - 11,600) = $194,880
Depreciation expense, 2014 = $194,880 x (7 / 28) = $48,720**
Depreciation expense, 2015 = $194,880 x (6 / 28) = $41,760
** Assuming annual depreciation. Asset acquisition in middle of the year will depreciate it for the full year. Result will vary for 2014 if monthly/semi-annual depreciation convention is assumed (which is not stated by question).
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