Muggsy Bogues Company purchased equipment for $298,620 on October 1, 2014. It is

Question

Muggsy Bogues Company purchased equipment for $298,620 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $13,200. Estimated production is 40,200 units and estimated working hours are 19,800. During 2014, Bogues uses the equipment for 590 hours and the equipment produces 1,000 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) Depreciation under SLM Annual Dep = ($ 298620- $ 13200)/8 = $ 35678 Depreciation for year 2014 = $ 35678/12 X 3 = $ 8920 b) Depreciation under activity method (unit of output) Depreciation for year 2014 = (298620-13200)/40200 X 1000 = $ 7100 C) Depreciation under activity method (working hour) Depreciation for year 2014 = (298620-13200)/19800 X 590 = $ 8505 d) Depreciation under sum of year digit method Sum of year's digit = n(n+1)/2 = 8(8+1)/2 =36 Depreciation Base = $ 298620-$ 13200 = $ 285420 Year Depreciatable Base Depreciation Factor Month Depreciation Expenses Accumulated Dep 2014 285420 8/36 3        15,857        15,857 2015 285420 8/36 9        47,570        63,427 285420 7/36 3        13,875        77,301        61,445 2016 285420 7/36 9        41,624     1,18,925 285420 6/36 3        11,893     1,30,818        53,516 Depreiciation for year 2016 = $ 53516 e) Depreciation under Double decling method Depreciation Year Asset Double Decline method Net book Value 2014        2,98,620                        18,664        2,79,956 (298620/8*2)/12*3 2015        2,79,956                        69,989        2,09,967 (279956/8*2) Depreciation for year 2015 = $ 69989

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