Pearl Corporation purchased a new machine for its assembly process on August 1,

Question

Pearl Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was $155,628. The company estimated that the machine would have a salvage value of $17,028 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 19,800 hours. Year-end is December 31.

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places, e.g. 45,892.)

(a) Straight-line depreciation for 2017 $

(b) Activity method for 2017, assuming that machine usage was 780 hours $

(c) Sum-of-the-years'-digits for 2018 $

(d) Double-declining-balance for 2018 $

Explanation / Answer

Part A straight line method

Annual depreciation =(cost - salvage value) / estimated life =(155628-17028)/5 =27720

Depreciation for 2017 =27720*5/12=11550

Part B activity method

Depreciation 2017 =(cost - salvage value) *machine usage/estimated hours = (155628-17028)*780/19800 =5460

Part C sum of years digit method

Depreciation = ((155628-17028)*5/15*7/12)+((155628-17028)*4/15*5/12))= 39270

Part 4 double declining balance method

Rate =1/5*2=40%

Depreciation for 2017 =155628*40%*5/12=25938

Depreciation for 2018=(155628-25938)*40%=51876

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