Question

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The cost of equipment purchased by Indigo, Inc., on June 1, 2017, is $ 101,460. It is estimated that the machine will have a $ 5,700 salvage value at the end of its service life. Its service life is estimated at  7 years, its total working hours are estimated at  47,880, and its total production is estimated at  598,500 units. During 2017, the machine was operated  6,840 hours and produced  62,700 units. During 2018, the machine was operated  6,270 hours and produced  54,720 units.

Compute depreciation expense on the machine for the year ending December 31, 2017, and the year ending December 31, 2018, 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.

(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

Straight line Method
A	Cost	$   1,01,460.00
B	Residual Value	$         5,700.00
C=A - B	Depreciable base	$      95,760.00
D	Life [in years left ]	7
E=C/D	Annual SLM depreciation	$      13,680.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2017	$    1,01,460.00	$         7,980.00	$     93,480.00	$          7,980.00
2018	$        93,480.00	$      13,680.00	$     79,800.00	$        21,660.00

Depreciation in 2017 is for 7 Months only

Units of Production Output
A	Cost	$   1,01,460.00
B	Residual Value	$         5,700.00
C=A - B	Depreciable base	$      95,760.00
D	Usage in units(in Units)	598500
E	Depreciation per Unit	$                 0.16

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
2017	$    1,01,460.00	62700	$     10,032.00	$        91,428.00	$          10,032.00
2018	$        91,428.00	54720	$       8,755.20	$        82,672.80	$         18,787.20

Units of Usage (working hours method
A	Cost	$   1,01,460.00
B	Residual Value	$         5,700.00
C=A – B	Depreciable base	$      95,760.00
D	Usage in units(in Hours)	47880
E	Depreciation per Hour	$                 2.00

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
2017	$    1,01,460.00	6840	$     13,680.00	$        87,780.00	$          13,680.00
2018	$        87,780.00	6270	$     12,540.00	$        75,240.00	$          26,220.00

Sum-of-the-Years'-Digits Method
A	Cost	$   1,01,460.00
B	Residual Value	$         5,700.00
C=A - B	Depreciable base	$      95,760.00
	Sum of digits with 5 years (7+6+5+4+3+2+1)	28

Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
2017	$        95,760.00	(([95760x7/28]/)	$     13,965.00	$        13,965.00	$          87,495.00
2018	$        95,760.00	(([95760x6/28]/)	$     20,520.00	$        34,485.00	$          66,975.00

Depreciation in 2017 is for 7 Months only

Double declining Method
A	Cost	$   1,01,460.00
B	Residual Value	$         5,700.00
C=A - B	Depreciable base	$      95,760.00
D	Life [in years]	7
E=C/D	Annual SLM depreciation	$      13,680.00
F=E/C	SLM Rate	14.29%
G=F x 2	DDB Rate	28.57%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
2003	$    1,01,460.00	28.57%	$     16,910.00	$        84,550.00	$          16,910.00
2004	$        84,550.00	28.57%	$     24,157.14	$        60,392.86	$          41,067.14

Depreciation in 2017 is for 7 Months only