Question

Jon Blue Spruce Furnace Corp. purchased machinery for $462,000 on May 1, 2020. It is estimated that it will have a useful life of 10 years, residual value of $12,000, production of 300,000 units, and working hours of 37,500. During 2021, Blue Spruce Corp. uses the machinery for 2,850 hours, and the machinery produces 23,000 units.

From the information given, calculate the following.

1. Calculate the depreciation charge for 2021 under straight-line method.

Depreciation charge

$Enter your answer in accordance to the question statement

  

  

2. Calculate the depreciation charge for 2021 under units of production method. (Round per unit calculation to 2 decimal places, e.g. 15.75 and final answer to 0 decimal places, e.g. 5,275.)

Depreciation charge

  

  

3. Calculate the depreciation charge for 2021 under working hours method.

Depreciation charge

  

  

4. Calculate the depreciation charge for 2021 under sum-of-the-years’-digits method. (Round answer to 0 decimal places, e.g. 5,275.)

Depreciation charge

  

  

5. Calculate the depreciation charge for 2021 under declining-balance method (use 20% as the annual rate).

		Depreciation Charge
2021

Answer 1

1) Straight-Line Method:
Cost of the Machinery	$462,000
Less: Salvage value	($12,000)
Depreciable value (a)	$450,000
Number of years of useful life (b)	10
Depreciation charge under straight-line method in 2021 (a/b)	$45,000
2) Units of production method:
Cost of the Machinery	$462,000
Less: Salvage value	($12,000)
Depreciable value (a)	$450,000
Total estimated number of units (b)	300,000
Units produced in 2021 (c )	23,000
Depreciation under units of production method in 2021 (a/b*c)	$34,500
3) Working hours method:
Cost of the Machinery	$462,000
Less: Salvage value	($12,000)
Depreciable value (a)	$450,000
Total estimated number of working hours (b)	37,500
Working hours in 2021 (c )	2,850
Depreciation under working hours method in 2021 (a/b*c)	$34,200
4) Sub-of-years'-digits method:
Depreciation charge in 2021 (10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 55) (9/55*$462,000)	$75,600
5) Declining balance method:
Cost of the Machinery	$462,000
Less: Salvage value	($12,000)
Depreciable value (a)	$450,000
Depreciation rate (b)	20%
Depreciation charge (a*b) in 2020	$90,000
Depreciable value	$450,000
Less: Depreciation in 2020	($90,000)
Book value in 2021 (a)	$360,000
Depreciation rate (b)	20%
Depreciation charge (a*b) in 2021	$72,000