Muggsy Bogues Company purchased equipment for $255,260 on October 1, 2014. It is
ID: 2476162 • Letter: M
Question
Muggsy Bogues Company purchased equipment for $255,260 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,480. Estimated production is 39,800 units and estimated working hours are 19,600. During 2014, Bogues uses the equipment for 540 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31. (a) Straight-line method for 2014 (Round answer to 0 decimal places, e.g. 45,892.) $ (b) Activity method (units of output) for 2014 (Round rate per unit to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) $ (c) Activity method (working hours) for 2014 (Round rate per hour to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) $ (d) Sum-of-the-years'-digits method for 2016 (Round answer to 0 decimal places, e.g. 45,892.) $ (e) Double-declining-balance method for 2015 (Round answer to 0 decimal places, e.g. 45,892.) $
Explanation / Answer
(a) Straight line method:
Depreciation
= (cost - salvage value) / Number of years of useful life
= ($255260 - $12480) / 8 years = $30348 per year
depreciation for 2014 = (3/12) * $30348 = $7587
(b) Activity method (units of output)
Depreciation base = cost - salvage value = $255260 - $12480 = $242780
depreciation
= depreciation base / estimated units of production
= $242780 / 39800 units
= $6.10 per unit
Depreciation for 2014 = 1100 x $6.10/unit = $6710
(c) Activity method (working hours)
depreciation
= depreciation base / estimated working hours
= $242780 / 19600 hours
= $12.39 / hour
Depreciation for 2014 = 540 hours * $12.39/hour = $6691
(d) Sum-of-the-years'-digits method
Sum of the years = n (n+1) / 2 = 8(8+1)/2 = 36 years
(e) Double-declining-balance method for 2015
Double declining rate = 2 * (1/8) = 25%
depreciation for 2014 = $255260*25%*(3/12) =$15954
Depreciation for 2015 = (255260 - 15954) * 25% = $59827
year remaining useful life at the beginning of the year SYD factor Annual depreciation 2014-15 8 8/36 53951 2015-16 7 7/36 47207 2016-2017 6 6/36 40463 2017-2018 5 5/36 33719 2018-2019 4 4/36 26976 2019-2020 3 3/36 20232 2020-2021 2 2/36 13488 2021-2022 1 1/36 6744 Note: the above depreciation schedule has been developed on the basis of the assumption that the year is starting on Oc1 1 and ending on Sept 30 of the next year. The depreciation is then prorated according to the number of months the machine has been used. SYD factor = (remaining useful life at the beginning of the year) / sum of the years Annual depreciation = depreciation base x SYD factor Depreciation for 2014 = (3/12) * 53951 = $13488 Depreciation for 2015 = (9/12)*53951 + (3/12)*47207 = $52265 Depreciation for 2016 = (9/12)*47207 + (3/12)*40463 = $45521Related Questions
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