Daawayne Wade Company purchased equipment for $212,000 on October 1,2008. It is
ID: 2369139 • Letter: D
Question
Daawayne Wade Company purchased equipment for $212,000 on October 1,2008. It is estimated that the equipment will ahve a usefule life of 8 years and a salvage value of $12,000. Estimated production is 40,000 units and estimated working hours 20,000 During 2008,Wade uses the equipment for 525 hours and the equipment produces 1,000 units.
Instruction:
Compute depreciton expenses under each of the following methods. Wade is on a calendar-year basis on December 31(Round to nearest dollar )
(a)Straight-line Method
(b)Activity Method(units of output ) for 2008
(c)Activity Method(Working hours) for 2008
(d) Sum-of-years' digits method
(e)Double-declining balance method for 2008
Explanation / Answer
(a)Straight-line Method
Straight line depreciation = cost minus salvage value divided by useful life: (212,000 – 12,000)/8 = 25,000 per year. Since from October to December is only three months: 25,000*3/12 = $6,250
Answer: $6,250
(b)Activity Method(units of output ) for 2008
Depreciation per unit = cost – salvage value divided by number of units: (212,000 – 12,000)/40,000 = 5 per unit. 1,000 units*5 per unit = 5,000
Answer: $5,000
(c)Activity Method(Working hours) for 2008
Depreciation per working hour = (212,000 – 12,000)/20,000 = 10 per working hour. 525 hours*10 per hour = $5,250
Answer: $5,250
(d) Sum-of-years' digits method
Since useful life is 8, 1+2+3+4+5+6+7+8= 36
First year’s depreciation = (8/36)(212,000 – 12,000) = 44,444.44
Since October to December is only three months: 44,444.44*3/12 = 11,111.11
Answer: $11,111.11
(e)Double-declining balance method for 2008
The useful life is 8 years. So the straight line rate is 100/8 = 12.5%. The DDB rate is 25%.
Beginning book value = 212,000
212,000*0.25% = 53,000.
For three months: 53,000*3/12 = 13,250.
Answer: $13,250
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