Question 1 Waterway Company purchased equipment for $219,390 on October 1, 2017.

Question

Question 1 Waterway Company purchased equipment for $219,390 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,360. Estimated production is 40,200 units and estimated working hours are 19,700. During 2017, Waterway uses the equipment for 530 hours and the equipment produces 1,000 units. Compute depreciation expense under each of the following methods. Waterway is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to O decimal places, e.g. 45,892.) (a) Straight-line method for 2017 (b) Activity method (units of output) for 2017 (c) Activity method (working hours) for 2017 (d) Sum-of-the-years'-digits method for 2019 (e) Double-declining-balance method for 2018

Explanation / Answer

Depreciable cost = Purchase price – Salvage value = $219390 - $12360 = $207030

(a) Straight-line method for 2017: $6470

Annual depreciation = $207030 / 8 years = $25878.75

Partial year depreciation for 2017 = $25878.75 x 3 / 12 = $6469.69 = $6470

(b) Activity method (units of output) for 2017: $5150

Depreciation rate per unit of output = $207030 / 40200 units = $5.15 per unit of output

Depreciation for 2017 = $5.15 x 1000 = $5150

(c) Activity method (working hours) for 2017: $5570

Depreciation rate per working hour = $207030 / 19700 hours = $10.51 per hour

Depreciation for 2017 = $10.51 x 530 = $5570.30 = $5570

(d) Sum-of-the-years’-digits method for 2019: $34505

Sum of the years’ digits = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36

Depreciation for 2019 = $207030 x 6 / 36 = $34505

(e) Double-declining-balance method for 2018: $51420

Straight-line depreciation rate = 100% / 8 years = 12.5%

Double-declining-balance rate = 200% x 12.5% = 25%

Book value at beginning = $219390

Depreciation for 2017 = $219390 x 25% x 3 / 12 = $13711.875

Book value at beginning of 2018 = $219390 - $13711.875 = $205678.125

Depreciation for 2018 = $205678.125 x 25% = $51419.53 = $51420

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