Wildhorse Company purchased equipment for $218,160 on October 1, 2017. It is est

Question

Wildhorse Company purchased equipment for $218,160 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,120. Estimated production is 40,800 units and estimated working hours are 20,200. During 2017, Wildhorse uses the equipment for 520 hours and the equipment produces 1,000 units.

Compute depreciation expense under each of the following methods. Wildhorse is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.)

(a) Straight-line method for 2017
$
(b) Activity method (units of output) for 2017
$
(c) Activity method (working hours) for 2017
$
(d) Sum-of-the-years'-digits method for 2019
$
(e) Double-declining-balance method for 2018
$

Explanation / Answer

Answer to Part a)

Straight Line Depreciation per year = (Cost – Salvage Value) Useful Life
Depreciation Expense for 2017 = (218,160 – 12,120) / 8 * 3/12
Depreciation Expense for 2017 = $6,438.75 or $6,439

Answer to Part b)

Depreciation Expense using Activity Method (Units of Output) = (Cost – Salvage Value) * Output Units / Expected Units during life of Asset
Depreciation Expense for 2017 = (218,160 – 12,120) * 1,000 / 40,800
Depreciation Expense for 2017 = 206,040 * 1,000 / 40,800
Depreciation Expense for 2017 = $5,050

Answer to Part c)

Depreciation Expense using Activity Method (Working Hours) = (Cost – Salvage Value) * Hours Used / Expected Hours during Life
Depreciation Expense for 2017 = (218,160 – 12,120) * 520/ 20,200
Depreciation Expense for 2017 = = 206,040 * 520 / 20,200
Depreciation Expense for 2017 = $5,304

Answer to Part d)

Depreciation Expense using Sum of the years’ Digit Method = Depreciable Base * Deprecaion Factor
Sum of the Years’ Digit = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36
Depreciation Factor = 8 / 36
Depreciable Case = $218,160 – 12,120 = $206,040

Depreciation Expense for 2017 = 206,040 * 8 /36 * 3/12
Depreciation Expense for 2017 = $11,447

Answer to Part e)

Double Declining Depreciation rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1/ Useful Life = 1/8 =12.50%
Double Declining Depreciation rate = 2 * 12.50 = 25%

Depreciation Expense for 2017 = 218,160 * 25% * 3/12
Depreciation Expense for 2017 = $13,635

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