Question

Windsor Company purchased equipment for $251,930 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,160. Estimated production is 40,300 units and estimated working hours are 20,100. During 2017, Windsor uses the equipment for 530 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Windsor 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

Answer A.

Cost of Equipment = $251,930
Salvage Value = $14,160
Useful Life = 8 years

Annual Depreciation = (Cost of Equipment - Salvage Value) / Useful Life
Annual Depreciation = ($251,930 - $14,160) / 8
Annual Depreciation = $29,721.25

Depreciation Expense for 2017 = $29,721

Answer B.

Cost of Equipment = $251,930
Salvage Value = $14,160
Useful Life = 40,300

Depreciation per unit = (Cost of Equipment - Salvage Value) / Useful Life
Depreciation per unit = ($251,930 - $14,160) / 40,300
Depreciation per unit = $5.90

Depreciation Expense for 2017 = 1,100 * $5.90
Depreciation Expense for 2017 = $6,490

Answer C.

Cost of Equipment = $251,930
Salvage Value = $14,160
Useful Life = 20,100 hours

Depreciation per hour = (Cost of Equipment - Salvage Value) / Useful Life
Depreciation per hour = ($251,930 - $14,160) / 20,100
Depreciation per hour = $11.83

Depreciation Expense for 2017 = 530 * $11.83
Depreciation Expense for 2017 = $6,270

Answer D.

Sum of Years = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8
Sum of Years = 36

Cost of Equipment = $251,930
Salvage Value = $14,160
Useful Life = 8 years

Depreciable Cost = Cost of Equipment - Salvage Value
Depreciable Cost = $251,930 - $14,160
Depreciable Cost = $237,770

Depreciation for 2019 = 6/36 * $237,770
Depreciation for 2019 = $39,628

Answer E.

Cost of Equipment = $251,930
Salvage Value = $14,160
Useful Life = 8 years

Straight-line Depreciation Rate = 1 / Useful Life
Straight-line Depreciation Rate = 1 / 8
Straight-line Depreciation Rate = 12.50%

Double-declining Depreciation Rate = 2 * 12.50%
Double-declining Depreciation Rate = 25.00%

Depreciation Expense for 2017 = $251,930 * 25%
Depreciation Expense for 2017 = $62,983

Book Value at the end of 2017 = $251,930 - $62,983
Book Value at the end of 2017 = $188,947

Depreciation Expense for 2018 = $188,947 * 25%
Depreciation Expense for 2018 = $47,237