The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $128,16

Question

The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $128,160. It is estimated that the machine will have a $7,200 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 60,480, and its total production is estimated at 756,000 units. During 2014, the machine was operated 8,640 hours and produced 79,200 units. During 2015, the machine was operated 7,920 hours and produced 69,120 units.

Compute depreciation expense on the machine for the year ending December 31, 2014, and the year ending December 31, 2015, using the following methods

a). Straight line

b.) Units of output

c.) Working Hours

d.) Sum-of-the-years'-digits

e.) Double-declining-balance (twice the straight-line rate)

Explanation / Answer

Depreciation Straight line basis 2014 2015 Depreciation 17280 17280 ((128160-7200)/7) Double declining method 2014 2015 Depreciation 36615.31 26154.32 rate= 1/7 =14.29% double = 28.57% Sum of the years digit Sum of the years (7+6+5+4+3+2+1) = 36 2014 2015 Depreciation 32040 27464.69 dep rate = 7/28 = 25% dep rate = 6/28 =21.43% Activity method based on hours worked 2014 2015 Depreciation 17280 15840 output method 2014 2015 Depreciation 12672 11059.2

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