Question

Exercise 11-6 Whispering Company purchased equipment for $256,200 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,640. Estimated production is 39,600 units and estimated working hours are 19,900. During 2017, Whispering uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Whispering is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.) (a) Straight-line method for 2017 $ (b) Activity method (units of output) for 2017 $ (c) Activity method (working hours) for 2017 $ (d) Sum-of-the-years'-digits method for 2019 $ (e) Double-declining-balance method for 2018 $

Answer 1

(a)Straight Lien Method for 2017 = $7,549

Depreciation Expense

= { [ Cost of the asset – Salvage Value ] / Useful Life }x No. of . Months Used

= { [$256,200 - $14,640 ] / 8 Years } x 3/12

= $30,195 x 3/12

= $7,549

(b) Activity method (units of output) for 2017 = $6,710

Depreciation Expense = Depreciation per Unit x Units Produced

Depreciation per Unit

= { [ Cost of the asset – Salvage Value ] / Estimated production }

= [$256,200 - $14,640 ] / 39,600 Units

= $6.10 per Unit

Depreciation Expense

= $6.10 x 1,100 Units

= $6,710

(c) Activity method (working hours) for 2017= $6,434

Depreciation Expense = Depreciation per hour x hours used

Depreciation per hour

= { [ Cost of the asset – Salvage Value ] / Estimated working hours }

= [$256,200 - $14,640 ] / 19,900 Hours

= $12.14 per hour

Depreciation Expense

= $12.14 per hour x 530 Hours

= $6,434

(d) Sum-of-the-years'-digits method for 2019 = $40,260

Depreciation Under Sum of years digits Method

= [ Cost of the asset – Salvage Value ] x No.of.years factor

= [$256,200 - $14,640 ] x 6/36

= $40,260

(e) Double-declining-balance method for 2018 = $60,047

Double Declining Depreciation = Book Value Beginning x 2 x Straight Line Depreciation Rate

Straight Line Depreciation Rate = 1 / Useful life = 1/8 = 0.125

2017 Depreciation = $256,200 x 2 x 0.125 x 3/12 = $16,013

2018 Depreciation = [$256,200 - 16,013 ] x 2 x 0.125 = $60,047