The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $206,48
ID: 2446419 • Letter: T
Question
The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $206,480. It is estimated that the machine will have a $11,600 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 97,440, and its total production is estimated at 1,218,000 units. During 2014, the machine was operated 13,920 hours and produced 127,600 units. During 2015, the machine was operated 12,760 hours and produced 111,360 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 2014 2015
b. Units-of-out 2014 2015
c. Working hours 2014 2015
d.Sum-of-the-years'-digits 2014 2015
e. Double-declining-balance (twice the straight-line rate) 2014 2015
Explanation / Answer
In 2014 ,asset is used for 7 months (1 june - 31 dec)
sum of years digit = n(n+1)/2
= 7(7+1)/2
= 7 *8 /2 = 56/2
= 28
DDM rate = (1/Useful life) *2
= (1/7) *2
= .1429*2
= 28.57%
194880 *7/28
= 48720* 7/12
= 28420
194880*6/28
= 41760
206480*.2857*7/12
= 34411.61
(206480-34411.51)*.2857
= 172068.39*.2857
= 49159.94
Formula 2014 2015 SLM (206480-11600)/7 = 194880/7 = 27840 27840*7/12= 16240 27840 units of output (206480-11600)/1218000 = 194880/1218000 = .16 per unit 127600*.16 = 20416 111360*.16 = 17817.60 working hours (206480-11600) /97440 = 194880/97440 = 2 per hour 13920*2 = 27840 12760*2 = 25520 sum of years digit (206480-11600) = 194880194880 *7/28
= 48720* 7/12
= 28420
194880*6/28
= 41760
DDM206480*.2857*7/12
= 34411.61
(206480-34411.51)*.2857
= 172068.39*.2857
= 49159.94
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