Question

Pronghorn Company purchased equipment for $226,800 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,960. Estimated production is 39,600 units and estimated working hours are 20,200. During 2017, Pronghorn uses the equipment for 530 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Pronghorn 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 $

3. Double-declining-balance method for 2018 $

Answer 1

Ans)

a) Straight-line method for 2017

Cost - salvage value / estimated useful life

= 226,800 - 12960 / 8

= 26,730 for year

for 3 months = 26,730 X 3 / 12 = $ 6682.5

b) Activity method (units of output) for 2017

= 226,800 - 12960 / 39,600 units

= 5.4 per output unit

= 1,100 units X 5.4 = $5940

C) Activity method ( working hours ) for 2017

=  226,800 - 12960 / 20,200

= 10.59 per hour

= 530 hours X 10.59 = $ 5612.7

d)  Sum-of-the-years'-digits method for 2019

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

Sum of years digits Total 2017 2018 2019

Year 1 (226,800 - 12960) X 8/36 = 47520 (47520 X 3/12)=11880 35640

Year 2 - 213840 X 7/36 = 41580 10395 31185

Year 3 - 213840 X 6/36 =35640 8910

11880 46035 40095

2019: $40095= (9/12 of 2nd year of machine’s life plus 3/12 of 3rdyear of machine’s life)

3) Double-declining-balance method for 2018

Double declining balance 2017 = 1/8 X 2 = 25%

2017 = 226800 X 25% X 3/12 = 14175

2018 = (226800 - 14175) X 25% = 53156.25