Depreciation Methods Gruman Company purchased a machine for $198,000 on January
ID: 2406456 • Letter: D
Question
Depreciation Methods
Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the following estimates:
In 2016, Gruman uses the machine for 2,000 hours and produces 40,000 units. In 2017, Gruman uses the machine for 1,400 hours and produces 32,000 units. If required, round your final answers to the nearest dollar.
Required:
Compute the depreciation for 2016 and 2017 under each of the following methods:
Straight-line method
Sum-of-the-years'-digits method
Double-declining-balance method
Activity method based on hours worked
Activity method based on units of output
For each method, what is the book value of the machine at the end of 2016? At the end of 2017?
Straight-line method
Sum-of-the-years'-digits method
Double-declining-balance method
Activity method based on hours worked
Activity method based on units of output
If Gruman used a service life of 8 years or 15,000 hours and a residual value of $9,000 , what would be the effect on the following under the straight-line, sum-of-the-years'-digits, and double-declining-balance depreciation methods?
Depreciation expense
Straight-line method
Sum-of-the-years'-digits method
Double-declining-balance method
Book value
Straight-line method
Sum-of-the-years'-digits method
Double-declining-balance method
Service life 5 years or 10,000 hours Production 180,000 units Residual value $ 18,000Explanation / Answer
Part A
Straight line depreciation
Annual depreciation = cost - residual value / estimated life = (198000-18000)/ 5 = 180000/5 = 36000
Depreciation 2016 = 36000
Depreciation 2017 = 36000
Book value 2016 = 198000-36000 = 162000
Book value 2017 = 162000-36000 =126000
Sum-of-the-years'-digits method
1+2+3+4+5 = 15
Depreciation 2016 = 5/15 *(198000-18000) = 60000
Depreciation 2017=4/15* (198000-18000) = 48000
Book value 2016 = 198000-60000 = 138000
Book value 2017 = 138000-48000 = 90000
Double declining balance method
Depreciation rate = 1/estimated life * 2 = 1/5 *2 =40%
Depreciation 2016 = 198000*40% = 79200
Book value 2016 = 198000-79200 = 118800
Depreciation 2017 = 118800*40% = 47520
Book value 2017 = 118800-47520 = 71280
Activity method based on hours worked
Depreciation 2016 = (198000-18000)*2000/10000 =36000
Depreciation 2017 = (198000-18000)*1400/10000 = 25200
Book value 2016 = 198000-36000 = 162000
Book value 2017 = 162000-25200 = 136800
Activity method based on units of output
Depreciation 2016 = (198000-18000)*40000/180000 = 40000
Depreciation 2017 = (198000-18000)*32000/180000 = 32000
Book value 2016 = 198000-40000 =158000
Book value 2017 = 158000-32000 =123000
depreciation for 2016 and 2017 under each of the following methods:
Straight-line method
2016 $36000
2017 $36000
Sum-of-the-years'-digits method
2016 $60000
2017 $48000
Double-declining-balance method
2016 $79200
2017 $47520
Activity method based on hours worked
2016 $36000
2017 $25200
Activity method based on units of output
2016 $40000
2017 $32000
the book value of the machine at the end of 2016 and At the end of 2017
Straight-line method
2016 $162000
2017 $126000
Sum-of-the-years'-digits method
2016 $138000
2017 $90000
Double-declining-balance method
2016 $118800
2017 $71280
Activity method based on hours worked
2016 $162000
2017 $132800
Activity method based on units of output
2016 $158000
2017 $123000
Part B
Straight line depreciation = (198000-18000) / 8 = 22500
Depreciation 2016 = 22500
Depreciation 2017 = 22500
Book value 2016 = 198000-22500 = 175500
Book value 2017 = 175500-22500 = 153000
Sum-of-the-years'-digits method
1+2+3+4+5+6+7+8 = 36
Depreciation 2016 = (198000-18000)*8/36 = 40000
Depreciation 2017 = (198000-18000)*7/36 = 35000
Book value 2016 = 198000-40000 =158000
Book value 2017 = 158000-35000 = 123000
Double declining balance method
Depreciation rate = 1/8 * 2 = 25%
Depreciation 2016 = 198000*25% = 49500
Book value 2016 = 198000-49500 = 148500
Depreciation 2017 = 148500*25% = 37125
Book value 2017 = 148500-37125 = 111375
Depreciation expense
Straight-line method
2016 $22500
2017 $22500
Sum-of-the-years'-digits method
2016 $40000
2017 $35000
Double-declining-balance method
2016 $49500
2017 $37125
Book value
Straight-line method
2016 $175500
2017 $153000
Sum-of-the-years'-digits method
2016 $158000
2017 $123000
Double-declining-balance method
2016 $148500
2017 $111375
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.