Muggsy Bogues Company purchased equipment for $310,940 on October 1, 2014. It is
ID: 2493048 • Letter: M
Question
Muggsy Bogues Company purchased equipment for $310,940 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $22,680. Estimated production is 40,600 units and estimated working hours are 20,300. During 2014, Bogues uses the equipment for 520 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.
a) Straight-line method for 2014 (Round answer to 0 decimal places, e.g. 45,892.) $ b)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.) $ c)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.) $ d)Sum-of-the-years'-digits method for 2016 (Round answer to 0 decimal places, e.g. 45,892.) $ e)Double-declining-balance method for 2015 (Round answer to 0 decimal places, e.g. 45,892.) $Explanation / Answer
Answer a. Straight Line Method Dep. Per annum under Straight Line Method = (310940 - 22680) / 8 Years = $36032.50 per annum Dep. under Straight Line Method For 2014 = $36032.50 X 3/12 = $9008.125 or $9008 (approx.) Answer b. Activity Method - Unit of Output Dep. Per Unit of Output = (310940 - 22680) / 40600 Units = $7.10 per Unit Dep. Charged in 2014 = 1000 Units X $7.10 = $7100 Answer c. Activity Method - Working Hrs Dep. Per working hr = (310940 - 22680) / 20300 hrs = $14.20 per hr Dep. Charged in 2014 = 520 hrs X $14.20 = $7384 Answer d. Sum of Year Digit method Dep. Charged for 1st Year = (310940 - 22680) X 8/36 = $64057.78 Dep. Charged for 2nd Year = (310940 - 22680) X 7/36 = $56050.56 Dep. Charged for 3rd Year = (310940 - 22680) X 6/36 = $48043.33 Dep. Charged in 2016 = $54048.75 or $54049 (Approx) Year Dep. 2014 2015 2016 1 64057.78 16014.45 48043.34 2 56050.56 14012.64 42037.92 3 48043.33 12010.83 16014.45 62055.98 54048.75 Answer e. Double Declining Balance Method Dep. Rate under DDB Method = 2 X Rate of Dep. Under Straight Line Method Dep. Rate under DDB Method = 2 X 12.50% = 25% Dep. Charged under 2014 = $310940 X 25% X 3/12 = 19433.75 Dep. Charged under 2015 = ($310940 - 19433.75) X 25% = $72876.56 or $72877 (Approx)
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