Question

Exercise 11-6 Muggsy Bogues Company purchased equipment for $314,160 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $26,520. Estimated production is 40,800 units and estimated working hours are 19,500. During 2014, Bogues uses the equipment for 540 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31. (a) Straight-line method for 2014 (Round answer to 0 decimal places, e.g. 45,892.) $ (b) Activity method (units of output) for 2014 (Round rate per unit to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) $ (c) Activity method (working hours) for 2014 (Round rate per hour to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) $ (d) Sum-of-the-years'-digits method for 2016 (Round answer to 0 decimal places, e.g. 45,892.) $ (e) Double-declining-balance method for 2015 (Round answer to 0 decimal places, e.g. 45,892.)

Answer 1

Equipment Cost = $314,160

Purchased on = October 1, 2014.( Depcreciation is calculated for 3 Months..i.e oct, nov, dec)

Useful life = 8 years

Salvage value= $26,520.

Estimated production = 40,800 units and Estimated working hours =19,500

equipment produces = 540 hours and the equipment produces 1,100 units

(a) Straight-line method for 2014 = [Equipment cost - Salvage value]/ Useful life of equipment * n/12

= [314160 - 26,520] / 8 * 3/12

= 35955 *3/12

= $ 8989

(b) Activity method (units of output) for 2014 = Production units / Total units * [Cost of equipment - salvage value]

= 1100 / 40800 *  [314160 - 26,520]

= $ 7755

(c) Activity method (working hours) for 2014 = Production hours / Total hours * [Cost of equipment - salvage value]

= 540 / 19500 *  [314160 - 26,520]

= $ 7965.

(d) Sum-of-the-years'-digits method for 2016 = $ 53932.

	2014	2015	2016
63920	15980	47940
55930		13982.5	41947.5
47940			11985
Total for 2016			53932.5

(e) Double-declining-balance method for 2015 =

for 2014 = [2 * 314,160 /8 ] * 3/12= 19635

For 2015 = [2* (314160 - 19635) / 8 ] = 73631