The cost of equipment purchased by Pina, Inc., on June 1, 2017, is $99,680. It i

Question

The cost of equipment purchased by Pina, Inc., on June 1, 2017, is $99,680. It is estimated that the machine will have a $5,600 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 47,040, and its total production is estimated at 588,000 units. During 2017, the machine was operated 6,720 hours and produced 61,600 units. During 2018, the machine was operated 6,160 hours and produced 53,760 units.

Compute depreciation expense on the machine for the year ending December 31, 2017, and the year ending December 31, 2018, using the following methods. (Round depreciation per unit to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 45,892.)

2017

2018

2017

2018

(a) Straight-line $

$

(b) Units-of-output $

$

(c) Working hours $

$

(d) Sum-of-the-years'-digits $

$

(e) Double-declining-balance (twice the straight-line rate) $

$

Explanation / Answer

a.Straight-line

2017 = [ ($99680 - $5600 ) / 7 ] x 7/12 = $7,840

2018 = [ ($99680 - $5600 ) / 7 ]            = $13,440

b. Units-of-output

2017 = ($99680 - $5600 ) x (61600/588000) x7/12 = $5,749

2018 = ($99680 - $5600 ) x (53760/588000)            = $8,602

c. Working hours

2017 = ($99680 - $5600 ) x (6720/47040) x7/12 = $7,840

2018 = ($99680 - $5600 ) x (6160/47040)            = $12,320

d. Sum-of-the-years'-digits

2017 = ($99680 - $5600 ) x (7/28) x7/12 = $13,720

2018 = ($99680 - $5600 ) x (6/28)            = $20,160

e. Double-declining-balance (twice the straight-line rate)        

2017 = ($99680 x 28.57% x 7/12       = $16,612

2018 = ($99680 - $16612) x 28.57% = $23,732.53 or $23,733 (Rounded)

Straight line rate = 2 * 1/7 = 28.57%

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