Question 1 On January 1, 2015, a machine was purchased for $99,900. The machine

Question

Question 1 On January 1, 2015, a machine was purchased for $99,900. The machine has an estimated salvage value of $6,660 and an estimated useful life of 5 years. The machine can operate for 111,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2015, 22,200 hrs; 2016, 27,750 hrs; 2017, 16,650 hrs; 2018, 33,300 hrs; and 2019, 11,100 hrs (a) Compute the annual depreciation charges over the machine's life assuming a December 31 year-end for each of the following depreciation methods. (Round answers to 0 decimal places, e.g. 45,892.) (1) Straight-line Method (2) Activity Method Year 2015 2016 2017 2018 2019 (3) Sum-of-the-Years'-Digits Method Year 2015 2016 2017 2018 2019 (4) Double-Declining-Balance Method

Explanation / Answer

Answer:- 1)-Declining balance depreciation is calculated using the following formula:-

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/5 = 0.20 = 20%
Declining Balance Rate = 2*20% = 40%

2)- Straight line Method = Cost of asset- Salvage value of asset/No. of useful life (years)

                                        =$99900-$6660/5 = $18648

3)- Activity method=No.of hours/Life in no.of hours*(Cost – Salvage value)

         Depreciation:-

Year 1 =22200/111000*($99900-$6660) = .20*$93240=$18648

Year 2=27750/111000*$93240 = .25*$93240 = $23310

Year 3=16650/111000*$93240=.15*$93240=$13986

Year 4=33300/111000*93240 = .30*$93240=$27972

Year 4=11100/111000*93240 =.10*$93240=$9324

4)- Sum of the years digits=Depreciable base*Remaining useful life/sum of the years digits

                =$4600000*8/36 = $1022222

Sum of the Years' Digits = 1+2+3+4+5= 5(5 + 1) ÷ 2 = 15

Depreciable Base = $99900 $6660 = $93240

Year 2015= $93240*5/15 = $31080

Year 2016= $93240*4/15 = $24864

Year 2017= $93240*3/15 = $18648

Year 2018= $93240*2/15 = $12432

Year 2019= $93240*1/15 = $6216

Depreciation = Depreciation Rate * Book Value of Asset

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