The cost of equipment purchased by Splish, Inc., on June 1, 2017(Partial year) ,

Question

The cost of equipment purchased by Splish, Inc., on June 1, 2017(Partial year), is $96,120. It is estimated that the machine will have a $5,400 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 45,360, and its total production is estimated at 567,000 units. During 2017, the machine was operated 6,480 hours and produced 59,400 units. During 2018, the machine was operated 5,940 hours and produced 51,840 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

2017

2018

(a) Straight-line $

$

(b) Units-of-output $

$

(c) Working hours $

$

(d) Sum-of-the-years'-digits $

$

(e) Double-declining-balance (twice the straight-line rate) $

$

Explanation / Answer

Answer:-

Rate = 2/7

2017 = 7/12 × 2/7 × 96120 = 16020

Methods of Depreciation 2017 2018 A. Straight Line Method $96120 -$5400 = $90720 ÷ 7 years = $12960 per year 2017 = $12960 × 7/12 $ 7560 2018 = $12960 $12,960 B. Units of output: ($96120 - $54000) ÷ 567,000 units = $ 0.07 per unit 2017 = $ 0.07 × 59400 = 4158 $4158 2018 = $0.07 × 51840 = 3629 $3629 C. Working hours:- (96120 - 5400) ÷ 45360 = $ 2 per hour 2017 :- $2 × 6480 = $12960 $12960 2018 :- $2 × 5940 = $11880 $11880 D. Sum of the year digits:- 1+2+3+4+5+6+7 = 28 2017 = 7/28 × 90720 × 7/12 = 13230 $13230 2018 = 7/28 × 90720 × 5/12 = 9450 = 6/28 × 90720 × 7/12 = 11340 $20790 E. Declining balance (twice the straight line rate)

Rate = 2/7

2017 = 7/12 × 2/7 × 96120 = 16020

$16020 2018 = (2/7 × 96120 - 16020) $11443

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