The cost of equipment purchased by Sage, Inc., on June 1, 2017, is $99,680. It i
ID: 2565523 • Letter: T
Question
The cost of equipment purchased by Sage, 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
Cost = 99,680
Purcahse date = June 1, 2017
Estimated salvage value = 5,600
Estimated useful life = 7 years
Total working hours = 47,040 hours
Working hours during 2017 = 6,720 hours
Working hours during 2018 = 6,160 hours
Toatl production = 588,000 units
Production during 2017 = 61,600 units
Production during 2018 = 53,760 units
(a) Depreciation under Straight line method = (cost - estimated salvage value) / estimated useful life
Depreciation in the year 2017 = [(99,680 - 5,600) / 7] * 7 / 12 = 7,840
Depreciation in the year 2018 = (99,680 - 5,600) / 7 = 13,440
(b) Depreciation under units of output method = (cost - estiamted salvage value) / total output * output this year
Depreciation in the year 2017 = (99,680 - 5,600) / 588,000 * 61,600 = 9,856
Depreciation in the year 2018 = (99,680 - 5,600) / 588,000 * 53,760 = 8,602
(c) Depreciation under Working hours method = (cost - estimated salvage value) / toatl working hours * hours this year
Depreciation in the year 2017 = (99,680 - 5,600) / 47,040 * 6,720 = 13,440
Depreciation in the year 2018 = (99,680 - 5,600) / 47,040 *6,160 = 12,320
(d) Depreciation under Sum of the years digits method = {(cost - estimsted salvage value) / [n(n+1)/2]} * no of years left
Depreciation in the year 2017 = {(99,680 - 5,600) / [7(7+1)/2]} * 7 * 7/12 = 13,720
Depreciation in the year 2018 = {(99,680 - 5,600) / [7(7+1)/2]} * 6 = 20,160
(e) Double decling balance method = (cost - accumulated depreciation) / estimated useful life * 2
Accumulated depreciation in the year 1 = 0
Depreciation in the year 2017 = (99,680 - 0) / 7 * 2 * 7 /12 = 16,613
Accumulated depreciation in the year 2 = 16,613
Depreciation in the yaer 2018 = (99,680 - 16,613) / 7 * 2 = 23,733.
2017 2018 (a) Straight line 7,840 13,440 (b) Units of output 9,856 8,602 (c) Working hours 13,440 12,320 (d) Sum of the years digits 13,720 20,160 (e) Double declining balance 16,613 23,733Related Questions
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