Muggsy Bogues Company purchased equipment for $286,360 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $26,520. Estimated production is 40,600 units and estimated working hours are 19,000. During 2014, Bogues uses the equipment for 550 hours and the equipment produces 1,100 units.
Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31.
| (a) | Straight-line method for 2014 (Round answer to 0 decimal places, e.g. 45,892.) | $ | ||
| (b) | Activity method (units of output) for 2014 (Round rate per unit to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) | $ | ||
| (c) | Activity method (working hours) for 2014 (Round rate per hour to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) | $ | ||
| (d) | Sum-of-the-years’-digits method for 2016 (Round answer to 0 decimal places, e.g. 45,892.) | $ | ||
| (e) | Double-declining-balance method for 2015 (Round answer to 0 decimal places, e.g. 45,892.) |
(a)
Straight-line method for 2014
$8,120
(b)
Activity method (units of output) for 2014
$7,040
(c)
Activity method (working hours) for 2014
$7,521
(d)
Sum-of-the-years’-digits method for 2016
$48,719.50
(E)
Double-declining-balance method for 2015
$69,130
Working notes for the above answer is as under
(a)
Straight-line method for 2014 .
purchased equipment for
286360
equipment will have a useful life
8 Year
salvage value
26520
Depreciation will be calculated for 3 months because machine was purchased on 1 October
Straight-line method depreciation = 286360-26520/ 8 year
=259840/ 8year
=$ 32,480 depreciation a year
=32480*3 /12
=$ 8,120
(b)
Activity method (units of output) for 2014
purchased equipment for
286360
equipment will have a useful life
8 Year
salvage value
26520
. Estimated production
40600
units
Units Produced
1100
Units
Activity method (units of output) for 2014
= (Cost-salvage value) * units produces during the year / total units produced of life
=286360-26520 * 1100 /40600
=6.4 *1100
=$ 7040
(c)
Activity method (working hours) for 2014
purchased equipment for
286360
equipment will have a useful life
8 Year
salvage value
26520
Total working hours
19000
Worked for 2014
550
Activity method (working hours) depriciation
=(Cost-salvage value) * hours during the year / total hours of life
=286360-26520 * 550 / 19000
=6.4 *1100
=$ 7521
(d)
.sum of digit method.
Year
Sum of
digit
Depriciation
1
,8/36
,259840*8/36
57742.22222
259840
2
,7/36
,259840*7/36
50524.44444
259840
3
,6/36
,259840*6/36
43306.66667
259840
4
,5/36
,259840*5/36
36088.88889
259840
5
,4/36
,259840*4/36
28871.11111
259840
6
,3/36
,259840*3/36
21653.33333
259840
7
,2/36
,259840*2/36
14435.55556
259840
8
,1/36
,259840*1/36
7217.777778
259840
Depriciation for 2016 = 48719.5
=
2014
2015
2016
14436
43306
12631
37893
10826.5
48719.5
(e)
Double-declining-balance method for 2015
Staight line rate
= 100 /8
=12.5
so in Double-declining-balance method we have to take double rate
=12.5 % * 2
= 25%
Year
Opeaning bal
Dep,
Clg
Bal
1
286360
25%
71590
214770
2
214770
25%
53692.5
161077.5
3
161077.5
25%
40269.375
120808.1
4
120808.1
25%
30202.03125
90606.09
Depreciation 2015
=
2014
2015
17897.5
53692.5
13423.125
69130.625
