Exercise 11-6 Carla Company purchased equipment for $250,800 on October 1, 2017.
ID: 2509809 • Letter: E
Question
Exercise 11-6 Carla Company purchased equipment for $250,800 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,400. Estimated production is 39,400 units and estimated working hours are 19,900 During 2017, Carla uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Carla is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.) (a) Straight-line method for 2017 (b) Activity method (units of output) for 2017 (c) Activity method (working hours) for 2017 (d) Sum-of-the-years'-digits method for 2019 (e) Double-declining-balance method for 2018 7387.50 6000 6296.4 Click if you would like to Show Work for this question: Open Show WorkExplanation / Answer
Depreciation under Sum of years digits method for 2019:
Formula: Depreciable Base x Remaining useful life / Sum of years of useful life
Depreciable Base = Cost - Salvage Value = 250800 - 14400 = $236400
Remaining useful life = 8 years - (01/10/2017 to 31/12/2019) = 8 - 2.25 = 5.75
Sum of years of digits = 8+7+6+5+4+3+2+1 = 36
Sum of years digits depreciation for 2019 = 236400 x 5.75 / 36 = $37758
Depreciation under double declining balance method for 2018:
Straight line depreciation rate = 1/8 = 0.125 or 12.5%
So double declining rate = 2 x 12.5% = 25%
Double declining depreciation for 2017 = 250800 x 25% x 3/12 = $15675
Double declining depreciation for 2018 is calculated as follows:
Book value x Double declining rate
Book value = Cost - Accumulated depreciation = 250800 - 15675 = $235125
Double declining depreciation for 2018 = $235125 x 25% = $58781.
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