Muggsy Bogues Company purchased equipment for $212,000 on Octorber 1, 2014. It i

Question

Muggsy Bogues Company purchased equipment for $212,000 on Octorber 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000.Estimated production is 40, 000 units and estimated working hours are 20, 000. During 2014, Bogues uses the equipment for 525 hours and the equipment produces 1,000 units. Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31. Straight-line method for 2014 (Round answer to 0 decimal places, e.g. 45,892.) Activity method (units of output) for 2014 (Round rate per unit to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) Activity method (working hours) for 2014 (Round rate per hour to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) Sum-of-the-years' -digits method for 2016 (Round answer to 0decimal places, e.g. 45,892.) Double-declining-balance method for 2015 (Round answer to 0 decimal places, e.g. 45,892.)

Explanation / Answer

(a) Annual depreciation under straight line method

= (cost - sloavage value) / useful life

= ($212000 - $12000) / 8years = $25000

Depreciation for 2014 (for 3 months) = $25000 / 4 = $6250

(b) Activity Method (units of output):

Depreciation per unit

= (cost - sloavage value) / total number of units expected to be produced

= ($212000 - $12000) / 40000 units = $5 per unit

Depreciation for 2014 = 1000 units x $5/unit = $5000

(c) Activity method (working hours)

Depreciation per unit

= (cost - sloavage value) / total number of units expected to be produced

= ($212000 - $12000) / 20000 hours = $10 per hour

Depreciation for 2014 = 525 hours x $10/hour = $5250

(d) Sum of the years digit method

Sum of the yeras' digits = n(n+1) / 2 = 8(8+1)/2 = 36

SYD Depreciation =Depreciable Base ×(Remaining Useful Life / Sum of the Years' Digits)

depreciable base = cost - salvage value = 212000 - 12000 = $200000

Depreciation for the first year = $200000 * (8/36) = $44444

Depreciation for the second year (from Oct1 2015 to Sept 30 2016) = $200000*(7/36) = $38889

Depreciation for the first 9 months of 2016 (Jan 1 to Sept 30) = (3/4) * 38889 = $29167

Depreciation for the Third year (from Oct1 2016 to Sept 30 2017) = $200000*(6/36) =$33333

Depreciation from Oct1 2016 to Dec 31 2016 = $33333/4 = $8333

Depreciation for 2016 = $29167 + $8333 = $37500

(e) Double delclining balance

Straight line rate = 1/8 = 12.5%

double declining rate = 2 * 12.5% = 25%

Depreciation for the first year (Oct1 2014 to Sept 30 2015) = $212000 * 25% = $53000

Depreciation for the first 9 months of 2015 (from Jan 1 2015 to Sept 30 2015)= $ 53000 * (3/4) = $39750

Depreciation for the second year (Oct 1 2015 to Sept 30 2016) = (212000 - 53000)*25% = $39750

Depreciation from Oct12015 to Dec 31 2015 = $39750/4 = $9938

Depreciation for 2015 = 39750 + 9938 = $49688

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