Question

Depreciation Methods Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the following estimates: Service life 5 years or 10,000 hours Production 180,000 units Residual value $ 18,000 In 2016, Gruman uses the machine for 2,000 hours and produces 40,000 units. In 2017, Gruman uses the machine for 1,400 hours and produces 32,000 units. If required, round your final answers to the nearest dollar.

Required: Compute the depreciation for 2016 and 2017 under each of the following methods:

Straight-line method 2016 $ 2017 $

Sum-of-the-years'-digits method 2016 $ 2017 $

Double-declining-balance method 2016 $ 2017 $

Activity method based on hours worked 2016 $ 2017 $

Activity method based on units of output 2016 $ 2017 $

For each method, what is the book value of the machine at the end of 2016? At the end of 2017? Straight-line method 2016 $ 2017 $ Sum-of-the-years'-digits method 2016 $ 2017 $ Double-declining-balance method 2016 $ 2017 $ Activity method based on hours worked 2016 $ 2017 $ Activity method based on units of output 2016 $ 2017 $ If Gruman used a service life of 8 years or 15,000 hours and a residual value of $9,000 , what would be the effect on the following under the straight-line, sum-of-the-years'-digits, and double-declining-balance depreciation methods? Depreciation expense Straight-line method 2016 $ 2017 $ Sum-of-the-years'-digits method 2016 $ 2017 $ Double-declining-balance method 2016 $ 2017 $ Book value Straight-line method 2016 $ 2017 $ Sum-of-the-years'-digits method 2016 $ 2017 $ Double-declining-balance method 2016 $ 2017 $

Answer 1

Solution 1&2

Computation of depreciation expense and book value for 2016 and 2017:

Depreciation Schedule - SLM
Year	Asset Cost	Depreciable Cost	Depreciation Rate	Depreciation Expense for the year	Accumulated Depreciation	Book Value
Acquisiton Date	$198,000.00
2016		$180,000.00	20%	$36,000.00	$36,000.00	$162,000.00
2017		$180,000.00	20%	$36,000.00	$72,000.00	$126,000.00

Computation of Depreciaton - Sum of digit of years
Year	Depreciation Base	Remaining life of asset	Depreciation fraction	Depreciation Expense	Accumlated Depreciation	Book Value
2016	$180,000.00	5	5/15	$60,000.00	$60,000.00	$138,000.00
2017	$180,000.00	4	4/15	$48,000.00	$108,000.00	$90,000.00

Depreciation Schedule - Double Declining Balance Method
Date	Asset Cost	Book Value	Depreciation Rate	Depreciation Expense for the year	Accumulated Depreciation	Book Value
Acquisiton Date	$198,000
2016		$198,000	40%	$79,200	$79,200	$118,800
2017		$118,800	40%	$47,520	$126,720	$71,280

Depreciation Schedule - Activity method based on hours worked
Date	Asset Cost	Depreciation per hour	Nos of hours	Depreciation Expense for the year	Accumulated Depreciation	Book Value
Acquisiton Date	$198,000.00
2016		$18.00	2000	$36,000.00	$36,000.00	$162,000.00
2017		$18.00	1400	$25,200.00	$61,200.00	$136,800.00

Depreciation Schedule - Activity method based on unit of output
Date	Asset Cost	Depreciation per unit	Nos of units	Depreciation Expense for the year	Accumulated Depreciation	Book Value
Acquisiton Date	$198,000.00
2016		$1.00	40000	$40,000.00	$40,000.00	$158,000.00
2017		$1.00	32000	$32,000.00	$72,000.00	$126,000.00

Solution 3:

Depreciation Schedule - SLM
Year	Asset Cost	Depreciable Cost	Depreciation Rate	Depreciation Expense for the year	Accumulated Depreciation	Book Value
Acquisiton Date	$198,000.00
2016		$189,000.00	12.5%	$23,625.00	$23,625.00	$174,375.00
2017		$189,000.00	12.5%	$23,625.00	$47,250.00	$150,750.00

Computation of Depreciaton - Sum of digit of years
Year	Depreciation Base	Remaining life of asset	Depreciation fraction	Depreciation Expense	Accumlated Depreciation	Book Value
2016	$189,000.00	8	8/36	$42,000.00	$42,000.00	$156,000.00
2017	$189,000.00	7	7/36	$36,750.00	$78,750.00	$119,250.00

Depreciation Schedule - Double Declining Balance Method
Date	Asset Cost	Book Value	Depreciation Rate	Depreciation Expense for the year	Accumulated Depreciation	Book Value
Acquisiton Date	$198,000
2016		$198,000	25%	$49,500	$49,500	$148,500
2017		$148,500	25%	$37,125	$86,625	$111,375