Culver Company purchased equipment for $221,000 on October 1, 2017. It is estima

Question

Culver Company purchased equipment for $221,000 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,480. Estimated production is 40,100 units and estimated working hours are 19,700. During 2017, Culver uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Culver is on a calendar-year basis ending December 31 (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

(a) Straight-line method for 2017

Straight line dep = (221000-12480)/8 = 26065 per year

2017 dep = 26065*3/12 = 6516

(b) Activity method (units of output) for 2017

Dep rate = (221000-12480)//40100 = 5.2 per unit

2017 dep = 1100*5.2 = 5720

c) Activity method (working hours) for 2017

Dep rate = (221000-12480/19700) = 10.58 per hour

2017 dep = 530*10.58 = $5610

d) Sum-of-the-years'-digits method for 2019

Sum of year digit = 8+7+6+5+4+3+2+1= 36

Dep 2019 = (208520*7/36*9/12+208520*6/36*3/12) = 39097

(e) Double-declining-balance method for 2018

Double decline dep = (221000*25%*9/12+221000*75%*25%*3/12) = 51797

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