The cost of equipment purchased by Concord, Inc., on June 1, 2017, is $97,900. I

Question

The cost of equipment purchased by Concord, 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

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

Computation of Depreciation:

a) Straight Line method:

Formula = (Value of the Assets - Salvage value)/Estimated Life of the asset

Depreciation for the year 2017 = $(97900-5500)/7 = $13200

Depreciation for the year 2018 = $(97900-5500)/7 = $13200

b) Units of output method = (Cost - Salvage value)*No. of units produced/ Life in no. of units

Depreciation for the year 2017 =$ (97900-5500)*60500/577500 = $(92400*60500)/577500 = $9680

Depreciation for the year 2018 =$ (97900-5500)*52800/577500 = $(92400*52800)/577500 = $8448

c) Working Hours Method = (Cost - Salvage value)*No. of working hours/ Life of total no. of working hours

Depreciation for the year 2017 =$ (97900-5500)*6600/46200 = $(92400*6600)/46200 = $13200

Depreciation for the year 2018 =$ (97900-5500)*6050/46200 = $(92400*6050)/46200 = $12100

d) Sum of the years digits = (Cost - Salvage value)*Remaining life/Sum of the years digits

Depreciation for the year 2017 = $ (97900-5500)*7/(1+2+3+4+5+6+7) = $(92400*7)/28 = $23100

Depreciation for the year 2018 = $ (97900-5500)*6/(1+2+3+4+5+6+7) = $(92400*6)/28 = $19800

e) Double declining balance = 2* straight line depreciation percentage* bookvalue at the begining of the period

Depreciation for the year 2017 = 2* (1/7)* 97900 = $27971.43

Depreciation for the year 2018 = 2* (1/7)* (97900-27971.43) = $19979.59

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