Question

Bramble Company purchased equipment for $220,800 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 36,000 units and estimated working hours are 20,000. During 2020, Bramble uses the equipment for 500 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Bramble 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 0 decimal places, e.g. 45,892.)

(a)		Straight-line method for 2020		$enter a dollar amount
(b)		Activity method (units of output) for 2020		$enter a dollar amount
(c)		Activity method (working hours) for 2020		$enter a dollar amount
(d)		Sum-of-the-years'-digits method for 2022		$enter a dollar amount
(e)		Double-declining-balance method for 2021		$enter a dollar amount

Answer 1

Answer:

(a)

2020 Straight-line $220800 – $12,000/8 = $26100/year

3 months—Depreciation $6525 = ($26100 X 3/12)

rate of dep = 1/ estimated useful life

=1/8 =0.125 or 12.5%

(b)

2020 Output $220800, - $12,000/36000 = $5.80/output unit

1,100 units X $5.80 = $6380

(c)

2020 Working hours $220800, – $12,000/20,000 = $9.84/hour

500 hours X $9.84 = $4920

(d)

sum of years digits :   

sum of years digits	total	2020	2021	2022
year 1 (8/36*208800)	46400	a 11600	b 34800
2 (7/36*208800)	40600		c 10150	d 30450
3 (6/36*208800)	34800			e 8700
total	121800	11600	44950	39150

2022: $39150 = (9/12 of 2nd year of machine’s life plus 3/12 of 3rd year of machine’s life)
^a$46400 X 3/12
^b$46400 X 9/12
^c$40600 X 3/12
^d$40600 X 9/12
^e$34800 X 3/12

(e)

Double-declining balance 2021: 12.5%* 2 = 25%.( see above rate under SLM)
2020: .25 X $220800 X 3/12 = $13800
2021: .25 X ($220800 – $13800) = $51750

NOTE :SALVAGE VALUE SHALLNOT BE CONSIDERED UNDER DOUBLE DECLINING METHOD.