Exercise 9-20 Crane Company purchased a new machine on October 1, 2017, at a cos

Question

Exercise 9-20 Crane Company purchased a new machine on October 1, 2017, at a cost of $91,800. The company estimated that the machine has a salvage value of $7,600. The machine is expected to be used for 69,600 working hours during its 8-year life Compute depreciation using the following methods in the year indicated. Declining-balance using double the straight-line rate for 2017 and 2018. (Round answers to O decimal places, e.g. 125) 2017 2018 Depreciation using the Declining-balance method Calculate the depreciation cost per hour. (Round answer to 2 decimal places, e.g. $1.25) Depreciation cost per hour Units-of-activity for 2017, assuming machine usage was 400 hours. (Round answer to o decimal places, e.g. 125) Depreciation using the Units-of-activity method for 2017s

Explanation / Answer

Part 1

Depreciation under double declining rate is double the straight line rate

[ 1 / Straight line rate ] x 2

= [ 1 / 8 ] x 2

= 0.25 or 25%

Depreciation for each year

= Opening book value x Depreciation rate x Months used / 12

Months used in 2017 = October to December = 3 months

So, Depreciation for 2017

= $91,800 x 25% x 3 / 12

= $ 5,738

Book value at the beginning of 2018

= Book value in 2017 – Depreciation for 2017

= $91,800 - $5,738

= $ 86,062

Depreciation for 2018

= $ 86,062 x 25% x 12/12

= $ 21,516

Part 2

Depreciation cost per hour

= (Cost – Estimated salvage value) / Expected working hours

= ($91,800 - $7,600) / 69,600

= $ 1.21

Depreciation for 2017

Number of hours x Depreciation per hour

= 400 x $1.21

= $ 484

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