O PR 9-2A Comparing three depreciation methods OBJ. 2 Monte\'s Coffee Company pu

Question

O PR 9-2A Comparing three depreciation methods OBJ. 2 Monte's Coffee Company purchased packaging equipment on January 5, 2014, for $90,000. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $6,000. The equipment was used for 8,900 hours during 2014, 7,100 hours in 2015, and 4,000 hours in C 2016 ME HOW Instructions 1. Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, and 2016 by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. The following columnar headings are suggested for recording the depreciation expense amounts: Straight- Balance Method Year Methed Method Answer 4 2. What method yields the highest depreciation expense for 2014? 3. What method yields the most depreciation over the three-year life of the equipment? F9 PS Fe

Explanation / Answer

1 Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset Depreciation expense = (90000-6000) /3 28000 Accumulated depreciation Depreciation expense Book value 0 90000 2014 28000*12/12 28,000 28,000 62,000 2015 28000*12/12 28,000 56,000 34,000 2016 28000*12/12 28,000 84,000 6,000 2 Double declining method Depreciation rate = [(cost of asset / life of asset ) / cost of asset ] *2 Depreciation rate = [90,000/3)/90,000] *2 Depreciation rate = 67% Depreciation = written down value * depreciation rate Accumulated depreciation Depreciation expense Book value 90000 2014 Depreciation = 90000*66.67% 60000 60,000 30,000 2015 Depreciation = 30000*66.67% 20,000 80,000 10,000 2016 Depreciation = 30000*66.67% 6667 86,667 3,333 3 Units of production method Depreciation per machine hour = (Cost of asset - salvage value )/ total machine hour Depreciation per machine hour = (90,000-6,000 )/20,000 Depreciation per item 4.20 Accumulated depreciation Depreciation expense Book value 90000 2014 4.20*8900 37380 37,380 52,620 2015 4.20*7100 29820 67,200 22,800 2016 4.20*4000 16800 84,000 6,000

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