Muggsy Bogues Company purchased equipment for $280,350 on October 1, 2014. It is
ID: 2533665 • Letter: M
Question
Muggsy Bogues Company purchased equipment for $280,350 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $21,000. Estimated production is 39,900 units and estimated working hours are 20,500. 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
Muggsy Bogues Company
Method
Depreciation Expense
Straight line method, 2014
$8,105.00
Activity method (units of output, 2014)
$6,500
Activity method (working hours, 2014)
$6,579
sum of digits method, 2016
$37,724
double-decline method, 2015
$65,707
Equipment cost = $280,350
Date of purchase – Oct 1, 2014
Useful life = 8 years
Salvage value = $21,000
Depreciation expense = depreciable base x 1/useful life
Depreciable base = cost – salvage value
= 280,350 – 21,000 = $259,350
Annual depreciation expense = 259,350 x 1/8 = $32,419
Depreciation expenses for 3 months of use in 2014, (Oct, Nov and Dec) = 32,419 x 3/12 = $8,105
Hence depreciation expense for 2014 under straight line method = $8,105
Depreciation expense = annual units of output x depreciable base/estimated production
Depreciable base = cost – residual value
Equipment cost = $280,350
Salvage value = $21,000
Depreciable base = cost – salvage value
= 280,350 – 21,000 = $259,350
Annual output in units = 1,000
Estimated output = 39,900
Rate per output = $259,350/39,900 = 6.5
Depreciation expense, 2014 = 1,000 x 6.5
Depreciation expense for 2014 = $6,500
Depreciation expense = annual hours worked x depreciable base/estimated working hours
Depreciable base = cost – residual value
Equipment cost = $280,350
Salvage value = $21,000
Depreciable base = cost – salvage value
= 280,350 – 21,000 = $259,350
Hours worked in 2014 = 520
Total estimated working hours = 20,500
Rate per hour = (259,350/20,500) = 12.65
Depreciation expense = 520 hours x 12.65
Depreciation expense for 2014 = $6,579
Depreciation expense = depreciable base x n(n+1)/2
N = useful life = 8 years
Depreciable base = cost – salvage value
= $280,350 - $21,000 = $259,350
= 10 (10 +1)/2 =55
Depreciation expense in year 3, 2016 = 259,350 x 8/55 = $37,724
Depreciation expense = cost x 2 x straight line depreciation rate
Cost = $280,350
Straight line depreciation rate = 1/8 = 12.5%
Depreciation rate = 2 x 12.5% = 25%
Depreciation expense for the year 2015 –
Depreciation expense = book value x 25%
Book value = cost – accumulated depreciation
Accumulated depreciation = depreciation expense of 2014
Depreciation expense of 2014 = cost x 25% x 3/12
(the equipment is used for 3 months only in 2014 – October through December)
Depreciation expense, 2014 = 280,350 x 25% x 3/12 = $17,522
Book value in 2015 = 280,350 – 17,522 = $262,828
Depreciation expense 2015 = 262,828 x 25% = $65,707
Method
Depreciation Expense
Straight line method, 2014
$8,105.00
Activity method (units of output, 2014)
$6,500
Activity method (working hours, 2014)
$6,579
sum of digits method, 2016
$37,724
double-decline method, 2015
$65,707
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.