The last two parts are asking for years 2016 and 2015. Muggsy Bogues Company pur
ID: 2492855 • Letter: T
Question
The last two parts are asking for years 2016 and 2015.
Muggsy Bogues Company purchased equipment for $212,000 on October 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 O decimal places, e.g. 45,892.) $ 6250 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.) $ 5000 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.) $ 5250 Sum-of-the-years'-digits method for 2016 (Round answer to 0 decimal places, e.g. 45,892.) $ 11111 Double-declining-balance method for 2015 (Round answer to 0 decimal places, e.g. 45,892.) $ 12500Explanation / Answer
a. depreciation as per straight line method = (cost of the asset - salvage value)/useful life * no. of months from 1st October to 31st December/12 months
= (212,000-12,000)/8*3/12
= $6,250
b. activity method (units of output): (cost of the asset - salvage value)/estimated total production*production in 2014
= (212,000-12,000)/40,000*1,000
= 5,000
c. activity method (working hours): (cost of the asset - salvage value)/estimated total working hours*hours used in 2014
= (212,000-12,000)/20,000*525
= 5,250
d. sum of the year's method for 2016: under this method, the rate is determined using the formula: n*(n+1)/2, where n is the useful life.
here n = 8, so 8*(8+1)/2 = 36. This is SYD.
amount to be depreciated = cost - salvage value = 212,000 - 12,000 = $200,000
In 2014, 3/12 or 0.25 of the estimated life is used. In 2015, 1 full year is used. At the beginning of 2016, remaining estimated useful life would be = 8 years - (0.25+1) = 6.75 years. Thus depreciation rate will be = remaining years/SYD*200,000
= 6.75/36*200,000
= $37,500
e. double declining balance rate = 2 * straight line rate
straight line rate = 100%/8 years = 12.5%. double declining rate = 12.5%*2 = 25%.
Depreciation in 2014 = cost*25% = 212,000*25%*3/12 = $13,250.
Balance at the beginning of 2015 = 212,000 - 13,250 = $198,750
Depreciation for 2015 = beginning balance*25%
= 198,750*25%
= $49,687.50 or 49,688 (rounded off to 0 decimal place).
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