The cost of equipment purchased by Grouper, Inc., on June 1, 2017, is $97,900. I
ID: 2560583 • Letter: T
Question
The cost of equipment purchased by Grouper, Inc., on June 1, 2017, is $97,900. It is estimated that the machine will have a $5,500 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 46,200, and its total production is estimated at 577,500 units. During 2017, the machine was operated 6,600 hours and produced 60,500 units. During 2018, the machine was operated 6,050 hours and produced 52,800 units.
Compute depreciation expense on the machine for the year ending December 31, 2017, and the year ending December 31, 2018, using the following methods. (Round depreciation per unit to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 45,892.)
2017 2018
(a)Straight-line $____________ $______________
(c)Working hours $____________ $______________
(e)Double-declining-balance (twice the straight-line rate) $_____________ $______________
Explanation / Answer
A. Straight Line Method
Cost of EquipMent = $ 97900
Salvage Value = $ 5,500
No of Years of service Life = 7 Years
Straight line method depreciation = (Cost of Equipment Less Salvage Value) / No of Years of service Life
= ($ 97,900 - $ 5,500 ) / 7 Years
= $ 92,400 / 7 Years
= $ 13,200
So, Straight line method depreciation 2017 & 2018 = $ 13,200 for Each Year.
B. Units of Output.
Total Production = 577500 units
Depreciation Cost per Unit = (Cost of Equipment Less Salvage Value) / Total Production
= ($ 97,900 - $ 5,500) / 577,500 Units
= $ 92,400 / 577500 Units
= 0.16 Per unit
So, Units-of-output for 2017 = 60500 units (Given) * Depreciation Cost per Unit
= 60500 Units * 0.16
= $ 9,650
Units-of-output for 2018 = 52800 units (Given) * Depreciation Cost per Unit
= 52800 Units * 0.16
= $ 8,448
C. Working hours Method
Total Working Hours = 46200 Hours
Depreciation Cost per Unit = (Cost of Equipment Less Salvage Value) / Total Working Hours
= ($ 97,900 - $ 5,500) / 46200 Hours
= $ 92,400 / 46200 Hours
= 2 Per Hours
So, Working Hours for 2017 = 6600 Hours (Given) * Depreciation Cost per Unit
= 6600 Hours * 2
= $ 13,200
Working Hours for 2018 = 6050 Hours (Given) * Depreciation Cost per Unit
= 6050 Hours * 2
= $ 12,100
D. Sum-of-the-years'-digits
Total Sum-of-the-years'-digits = 7+6+5+4+3+2+1
=28
Depreciation for year Sum-of-the-years =(Cost of Equipment Less Salvage Value)/Total Sum-of-the-years'-digits
= ($ 97,900 - $ 5,500) / 28
= $ 92,400 / 28
= $ 3,300
Sum-of-the-years 2017 = $ 3,300 * 7 = $ 23,100
Sum-of-the-years 2018 = $ 3,300 * 6 = $ 19,800
E. Double Declining Balance
Straight Line Rate = $ 13,200 / $ 92,400 * 100
= 14.29%
So, Double Declining Balance Rate = 14.29*2 =28.57%
Depreciation 2017 = $ 92,400 * 28.57%
=$ 26,399
Depreciation 2018= ($ 92,400 - $ 26,399) * 28.57%
= $ 18,856
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