Question

Skysong Company purchased equipment for $199,200 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 36,000 units and estimated working hours are 20,000. During 2020, Skysong uses the equipment for 500 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Skysong 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 2020		$enter a dollar amount
(b)		Activity method (units of output) for 2020		$enter a dollar amount
(c)		Activity method (working hours) for 2020		$enter a dollar amount
(d)		Sum-of-the-years'-digits method for 2022		$enter a dollar amount
(e)		Double-declining-balance method for 2021		$enter a dollar amount

Answer 1

SOLUTION 1 (A)
	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE
	Purchase Cost of Machine	$                  1,99,200
	Less: Salvage Value	$                     12,000
	Net Value for Depreciation	$                  1,87,200
	Usefule life of the Assets	8 years
	Depreciation per year = Value for Depreciation / 5 years =	$                     23,400
	Depreciation for the year 2020 ($ 23,400 X 3/12)	$                        5,850
	Answer = $ 5,850
SOLUTION 1 (B)
	CALCULATION OF THE DEPRECIATION AS PER UOP METHOD
	Purchase Cost of Equipment =	$                  1,99,200
	Less: Salvage Value =	$                     12,000
	Net Value for Depreciation =	$                  1,87,200
	Expected to Produce Units=	$                     36,000	Units
	Depreciation per unit =	$                          5.20	Per Unit Cost
	Depreciation for the year 2020 = 1,100 Units X $ 5.20 =	$                        5,720
	Answer = $ 5,720
SOLUTION 1 (C)
	CALCULATION OF THE DEPRECIATION AS PER UOP METHOD
	Purchase Cost of Equipment =	$                  1,99,200
	Less: Salvage Value =	$                     12,000
	Net Value for Depreciation =	$                  1,87,200
	Expected to Produce Units=	$                     20,000	Hours
	Depreciation per unit =	$                          9.36	Per Hours
	Depreciation for the year 2020 = 500 Units X $ 9.36 =	$                        4,680
	Answer = $ 4,680
SOLUTION 1 (D)
	CALCULATION OF THE DEPRECIATION AS PER SUM OF DIGITS METHOD
	Purchase Cost of Machine	$                  1,99,200
	Less: Salvage Value	$                     12,000
	Net Value for Depreciation	$                  1,87,200
	SUM OF DIGITS = 1+2+3+4+5+6+7+8 =36
	For the year 2020 , 2021 & 2022 Gigits is 8, 7 & 6 respectively
	Depreciation for the year
	So depreciation for the year 2020 = ($187,200 X8/36) X 3/12	$                     10,400
	So depreciation for the year 2021 = ($187,200 X8/36) X 9/12	$                     31,200
	So depreciation for the year 2021 = ($187,200 X7/36) X 3/12	$                        9,100
	So depreciation for the year 2022 = ($187,200 X7/36) X 9/12	$                     27,300
	So depreciation for the year 2022 = ($187,200 X6/36) X 3/12	$                        7,800
	Answer = Depreciation for the year 2022 =	$                     35,100
SOLUTION 1 (E)
	CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD FOR MACHINE C
	Rate of Depreciation =
	Rate of Depreciation = (1 / 8 Years )	0.125 or 12.50%	0.125
	(Depreication / Purchase price )
	Double decline deprection rate = 12.5% * 2 =	25.0%
	Years	Book Value / Beginning value	Depreciation @ 25%	Closing Value
	Year 2020 ( 3 Months	1,99,200	12,450	1,86,750
	Year 2021	1,86,750	46,688	1,40,063
	Answer = Depreciation for the year 2021 = $ 46,688