Question

The cost of equipment purchased by Blossom, Inc., on June 1, 2020, is $105,000. It is estimated that the machine will have a $4,200 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 50,400, and its total production is estimated at 504,000 units. During 2020, the machine was operated 7,440 hours and produced 68,200 units. During 2021, the machine was operated 6,820 hours and produced 59,520 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

	Year 2020	Year 2021
Straight line	$8,400	$14,400
Units of output	$13,640	$11,904
working hours	$14,880	$13,640
Sum of year digits	$14,700	$23,100
Double declining balance	$17,505	$25,006

a)

Depreciation as per straight line method= (Total cost- salvage value)/Useful life

Total cost=$ 105,000

Salvage value=4,200

Useful life =7 years

Depreciation expense in year 2020 for half year= (105,000-4,200)/7

=$ 14,400*7/12= $ 8,400

Depreciation expense in year 2021= $ 14,400

b)

Year 2020

Depreciation under units of output method= (Total cost-salvage value)/Total units of output*Units of output this year

Total cost=$ 105,000

Salvage value=$4,200

Total unit of output=504,000 units

Unit of output in 2020=68,200

Depreciation=(105,000-4,200)/504,000*68,200= $13,640

Year 2020

Unit of output in 2021=59,520

Depreciation expense= $11,904

c)

Year 2020

Depreciation expense as per working hours method= (Total cost-salvage value)/Total working hours*Hours worked this year

Total cost=$ 105,000

Salvage value=$4,200

Total working hours=50,400

Hours worked in 2020= 7,440

Depreciation= (105,000-4,200)/50,400*7,440=$ 14,880

Year 2021

Hours worked in 2021= 6,820

Depreciation= (105,000-4,200)/50,400*6,820=$ 13,640

d)

Year 2021

Depreciation expense as per sum of year digit method=(Remaining useful life/Sum of digits of useful life)*Depreciable base

Depreciable base=Total cost-salvage value

Total cost=105,000

Salvage value=4,200

Depreciable base= 105,000-4,200=100,800

Sum of digits=1+2+3+4+5+6+7=28

Remaining useful life= 7years

Depreciation expense= 100,800*7/28

Depreciation Charge in 1st YEAR OF Asset= $ 25,200

Now depreciation charge ins second year of asset

Depreciable base= 105,000-4,200=100,800

Sum of digits=1+2+3+4+5+6+7=28

Remaining useful life= 6 years

Depreciation charge ins Second year of asset= 100,800*6/28

Depreciation charge ins Second year of asset= $ 21,600

Now

Depreciation expense for 2020( 7 month)= 25,200*7/12=$ 14,700

Depreciation expense for 2021= 25,200*5/12+21,600*7/12

Depreciation expense for 2021=$ 23,100

e)

Year 2020

Depreciation expense using double declining balance method= Cost of asset*Straight line rate

Straight line rate=1/useful life

Useful life= 7 years

Cost of asset= 105,000

Rate=14.29%

Double declining rate= 14.29*2=28.58%

Depreciation expense for 7 months= 105,000*28.58%*7/12= $17,505

Depreciation expense 2020=$17,505

Year 2021

Depreciation expense= Ending avlue 2020*Double declining rate

Ending value 2020= 105,000-17,505

=87,495

Depreciation expense 2021= 87,495*28.58%

=$ 25,006

Hope this helps now!