Question

Problem 11-11

On January 1, 2015, a machine was purchased for $90,900. The machine has an estimated salvage value of $6,060 and an estimated useful life of 5 years. The machine can operate for 101,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2015, 20,200 hrs; 2016, 25,250 hrs; 2017, 15,150 hrs; 2018, 30,300 hrs; and 2019, 10,100 hrs.

Compute the annual depreciation charges over the machine’s life assuming a December 31 year-end for each of the following depreciation methods. (Round answers to 0 decimal places, e.g. 45,892.)

(1)

Straight-line Method

$

(2)

Activity Method

Year

2015

$

2016

$

2017

$

2018

$

2019

$

(3)

Sum-of-the-Years'-Digits Method

Year

2015

$

2016

$

2017

$

2018

$

2019

$

(4)

Double-Declining-Balance Method

Year

2015

$

2016

$

2017

$

2018

$

2019

$

Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.)

Year

Straight-line Method

Sum-of-the-years'-digits method

Double-declining-balance method

2015

$

$

$

2016

2017

2018

2019

2020

Answer 1

1	Straight-line
	Year	Book Value year start	Depreciation Life	Depreciation Exp.	Acc. Dep	Book Value year-end
	2015	$90,900	5	$16,968	$16,968	$73,932
	2016	$73,932	5	$16,968	$33,936	$56,964
	2017	$56,964	5	$16,968	$50,904	$39,996
	2018	$39,996	5	$16,968	$67,872	$23,028
	2019	$23,028	5	$16,968	$84,840	$6,060
	Depreciation per year = ($90,900 - $6,060)/5 = $16,968
2	Double declining balance method
	Year	Book Value year start	Depreciation Rate	Depreciation Exp.	Acc. Dep	Book Value year-end
	2015	$90,900	40.00%	$36,360	$36,360	$54,540
	2016	$54,540	40.00%	$21,816	$58,176	$32,724
	2017	$32,724	40.00%	$13,090	$71,266	$19,634
	2018	$19,634	40.00%	$7,854	$79,119	$11,781
	2019	$11,781	48.56%	$5,721	$84,840	$6,060
3	Units of activity
	Year	Book Value year start	units of activity	Depreciation Exp.	Acc. Dep	Book Value year-end
	2015	$90,900	20,200	$16,968	$16,968	$73,932
	2016	$73,932	25,250	$21,210	$38,178	$52,722
	2017	$52,722	15,150	$12,726	$50,904	$39,996
	2018	$39,996	30,300	$25,452	$76,356	$14,544
	2019	$14,544	10,100	$8,484	$84,840	$6,060
			101,000
	Depreciation per hour = ($90,900 - $6,060)/101,000 = $0.84 per hour
4	Sum-of-the-Years'-Digits Method
	Year	Book Value Year Start	Total Cost Depreciable	Depreciation Rate	Depreciation Exp.	Acc. Dep	Book Value year-end
	2015	$90,900	$84,840	33.33%	$28,277	$28,277	$62,623
	2016	$62,623	$84,840	26.67%	$22,627	$50,904	$39,996
	2017	$39,996	$84,840	20.00%	$16,968	$67,872	$23,028
	2018	$23,028	$84,840	13.33%	$11,309	$79,181	$11,719
	2019	$11,719	$84,840	6.67%	$5,659	$84,840	$6,060