Cheyenne Company purchased a machine on January 1, 2013, for $65,000. The estima

Question

Cheyenne Company purchased a machine on January 1, 2013, for $65,000. The estimated life is 8 years and the estimated salvage value is $5,000. The machine has an estimated service life of 48,000 hours. In 2013, 6,900 hours were used.

   REQUIRED:

            Compute the depreciation to be recorded for the year ending December 31, 2013 using the:

Straight-line method

Production hours method

Sum-of-the years' digits method

Double-declining balance method

B. Presented below is information related to equipment owned by Swiss Company at December 31, 2013:

Cost

$9,000,000

Acc. depreciation to date

1,000,000

Expected undiscounted future cash flows

7,000,000

Fair Value

4,800,000

Cost

$9,000,000

Acc. depreciation to date

1,000,000

Expected undiscounted future cash flows

7,000,000

Fair Value

4,800,000

Explanation / Answer

a) Straight line method = Depreciable value/Useful life.
Depreciable value = Purchase price - Salvage value = $65000-$5000 = $60000
= $60000/8
= $7500 per year
Depreciation rate = $7500/$60000 *100 = 12.5%

b) Production hours method =
Depreciable value/Total production hours * Production hours in 2013
= $60000/48000 * 6900
= $8625

c) Sum of digits = 1+2+3+4+5+6+7+8 = 36
Depreciation for 2013 = 8/36 * $60000 = $13333.33

d) Double declining balance method rate = 2*Straight line method rate
= 2*12.5%
= 25%
Depreciation for 2013 = $60000*25% = $15000

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