Question

The cost of equipment purchased by Bramble, Inc., on June 1, 2020, is $92,400. It is estimated that the machine will have a $8,400 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 42,000, and its total production is estimated at 600,000 units. During 2020, the machine was operated 6,900 hours and produced 63,200 units. During 2021, the machine was operated 6,320 hours and produced 55,200 units.

Compute depreciation expense on the machine for the year ending December 31, 2020, and the year ending December 31, 2021, using the following methods. (Round depreciation per unit to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 45,892.)

				2020		2021
(a)		Straight-line		$		$
(b)		Units-of-output		$		$
(c)		Working hours		$		$
(d)		Sum-of-the-years'-digits		$		$
(e)		Double-declining-balance (twice the straight-line rate)		$		$

Answer 1

Note . All amounts are in Dollars

Depreciation under Straight line method = (Cost- salvage value)/ Estimated useful life

Depreciation under Units of Output method =  [(Cost-salvage value)/Estimated output]*Actual output

Depreciation under Working hours method = [(Cost-salvage value)/total working hours]*Operated hours

Depreciation under Sum-of-the-years = ([Cost- salvage value)/sum of the years' digits]* Remaining useful life of the asset as at the start of year

Depreciation under Double declining balance method = Rate of depriciation under staight line method*2

Depreciation for 2020   

A. Straight line method    =(92,400-8400)/7

= 12,000   

Rate of depriciation = 12,000/84,000 = 14.28%

b. Units of Output method = (92,400-8,400/600,00]*63,200 = 8,848

c. Working hours method = [(92,400-8,400)/42,000*6,900 = 13,800

d. Sum-of-the-years method = [(92,400-8,400)/7+6+5+4+3+2+1]*7 = 21,000

e. Double declining balance method = (92,400-8,400)*14.28%*2 = 23,990

Depreciation for 2021

A. Straight line method    = (92,400-8400)/7 = 12,000

B. Units of Output method = (92,400-8,400/600,00]*55200 = 7,728

C. Working hours method = [(92,400-8,400)/42,000*6320 = 12,640

D. Sum-of-the-years method = [(92,400-8,400)/7+6+5+4+3+2+1]*6 = 18,000

E. Double declining balance method = (92,400-8,400-23,990)*14.28%*2 = 17,165