Question

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Exercise 11-06

Crane Company purchased equipment for $192,000 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, Crane uses the equipment for 500 hours and the equipment produces 1,000 units.

Compute depreciation expense under each of the following methods. Crane 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

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Crane Company
Cost of Equipment	192,000.00	A
Residual Value	12,000.00	B
Depreciable Value	180,000.00	C=A-B
Answer a
Straight Line Method
Depreciable Value	180,000.00	See C
Life	8.00	D
Annual depreciation	22,500.00	E=C/D
Purchased on Oct 1, 2020
Depreciation for 2020 (months)	3.00	F
Depreciation expense for 2020	5,625.00	G=E/12*F
Answer b
Units of output Method
Depreciable Value	180,000.00	See C
Life (Units)	36,000.00	H
Depreciation per unit	5.00	I=C/H
Production in 2020	1,000.00	J
Depreciation expense for 2020	5,000.00	K=I*J
Answer c
Working hours Method
Depreciable Value	180,000.00	See C
Life (hours)	20,000.00	L
Depreciation per hour	9.00	M=C/L
Hours used in 2020	500.00	N
Depreciation expense for 2020	4,500.00	O=M*N

				C		P	Q=C*P
Answer d			Table	Depreciable Value	Remaining life	Depreciable fraction	Depreciable Expense
Sum-of-the-years'-digits method			Year 2020	180,000.00	8.00	8/36	40,000.00
Depreciable Value	180,000.00	See C	Year 2021	180,000.00	7.00	7/36	35,000.00
Life (years)	8.00	See D	Year 2022	180,000.00	6.00	6/36	30,000.00
Refer table in the right side.			Year 2023	180,000.00	5.00	5/36	25,000.00
That is annual depreciation.			Year 2024	180,000.00	4.00	4/36	20,000.00
But equioment purchased on Oct 1			Year 2025	180,000.00	3.00	3/36	15,000.00
Depreciation for 2020 (months)	3.00	See F	Year 2026	180,000.00	2.00	2/36	10,000.00
Annual Depreciation for 2020	40,000.00	Z	Year 2027	180,000.00	1.00	1/36	5,000.00
Depreciation expense for 2020	10,000.00	AA= Z/12*F			36.00		180,000.00
Remaining will be allicated to 2021	30,000.00	AB= Z-AA
Annual Depreciation for 2021	35,000.00	AC
3 months deprciation	8,750.00	AD= AC/12*F
Depreciation expense for 2021	38,750.00	AE= AB+AD
Remaining will be allicated to 2022	26,250.00	AF=AC-AD
Annual Depreciation for 2022	30,000.00	AG
3 months deprciation	7,500.00	AH=AG/12*3
Depreciation expense for 2022	33,750.00	AI= AF+AH

Answer e
Double Declining Method
Cost of Equipment	192,000.00	See A
Life	8.00	See D
Annual depreciation	24,000.00	R=A/D
Depreciation rate	12.50%	S=R/A
Double Depreciation %	25.00%	T=S*2
Annual depreciation for 2020	48,000.00	U=A*T
Purchased on Oct 1, 2020
Depreciation for 2020 (months)	3.00	V
Depreciation expense for 2020	12,000.00	W=U/12*V
Book value in 2021	180,000.00	X=A-W
Depreciation expense for 2021	45,000.00	Y=X*T