Question

Marigold Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $127,500. The company estimated that the machine would have a salvage value of $10,500 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 20,000 hours. Year-end is December 31.

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places, e.g. 45,892.)

(a)      
Straight-line depreciation for 2020
$enter a dollar amount
(b)      
Activity method for 2020, assuming that machine usage was 880 hours
$enter a dollar amount
(c)      
Sum-of-the-years'-digits for 2021
$enter a dollar amount
(d)      
Double-declining-balance for 2021

Answer 1

Straight Line
Cost of the machine			$ 127,500.00
Estimated salvage value			$   10,500.00
Depreciable cost			$ 117,000.00
Estimated life			5	years
Depreciation Expense per year			$   23,400.00
Depreciation Expense for 2020			$     9,750.00	($ 23400 x 5/12)

Activity Method
Cost of the machine			$ 127,500.00
Estimated salvage value			$   10,500.00
Depreciable cost			$ 117,000.00
Estimated total working hours			20000	hrs
Depreciation expense per hour			$             5.85
Depreciation Expense for 2020			$     5,148.00	($ 5.85 x 880 hours)

Sum of the year's digits
Cost of the machine			$ 127,500.00
Estimated salvage value			$   10,500.00
Depreciable cost			$ 117,000.00
Sum of the year's digits			15	(5+4+3+2+1)
Depreciation Expense for 2021			$   35,750.00	[($ 117000 x 5/15 x 7/12) + ($ 117000 x 4/15 x 5/12)]

Double Declining Balance
Cost of the machine			$ 127,500.00
Estimated life			5	years
Rate of Depreciation			40%	(100% / 5 years) x 2
Depreciation Expense for 2021			$   42,500.00	(Workings)

Workings:
Depreciation for 2020		$   21,250.00	($ 127500 x 40% x 5/12)
Carrying Value if machine		$ 106,250.00	($ 127500 - $ 21250)
Depreciation for 2021		$   42,500.00	($ 106250 x 40%)