Question

Blossom Company purchased equipment for $303,200 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $15,200. Estimated production is 45,000 units and estimated working hours are 20,000. During 2020, Blossom uses the equipment for 530 hours and the equipment produces 1,000 units Compute depreciation expense under each of the following methods. Blossom 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 (b) Activity method (units of output) for 2020 (c) Activity method (working hours) for 2020 (d) Sum-of-the-years-digits method for 2022 (e) Double-declining-balance method for 2021

Answer 1

SOLUTION 1 (A)
	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE
	Purchase Cost of Machine	3,03,200
	Less: Salvage Value	15,200
	Net Value for Depreciation	2,88,000
	Usefule life of the Assets	8 years
	Depreciation per year = Value for Depreciation / 8 years =	36,000
	Total Depreciation for the per year	36,000
	Depreciation for the year 2020 = $ 36,000 X 3 /12 month =	9,000
SOLUTION 1 (B)
	CALCULATION OF THE DEPRECIATION AS ACTIVITY METHOD (UNITS OF OUTPUT) FOR 2020
	Purchase Cost of Equipment =	3,03,200
	Less: Salvage Value =	15,200
	Net Value for Depreciation =	2,88,000
	Expected to Produce Units=	45,000	Units
	Depreciation per unit =	$                          6.40	Per Unit Cost
	($ 288,000 / 45,000 Units)
	Depreciation for the year 2020 = 1000 Units X $ 6.40 =	$                        6,400
SOLUTION 1 (C)
	CALCULATION OF THE DEPRECIATION AS ACTIVITY METHOD (WORKING HOURS) FOR 2020
	Purchase Cost of Equipment =	3,03,200
	Less: Salvage Value =	15,200
	Net Value for Depreciation =	2,88,000
	Expected to Produce Hours	20,000	Hours
	Depreciation per unit =	$                        14.40	Per Hours
	($ 288,000 / 45,000 Units)
	Depreciation for the year 2020 = 530 Hours X $ 14.40 =	$                        7,632
SOLUTION 1 (D)
	CALCULATION OF THE DEPRECIATION AS PER SUM OF DIGITS METHOD
	Purchase Cost of Machine	$                  3,03,200
	Less: Salvage Value	$                     15,200
	Net Value for Depreciation	$                  2,88,000
	SUM OF DIGITS = 1+2+3+4+5+6+7+8 =36
	For the year 2020 , 2021 & 2022 Digits is 8 , 7 & 6respectively
	Depreciation for the year
	Depreciation for the year 2020 = ($ 2,88,00 * 8 /36) X 3/12 Month =	$                     64,000
	Machine is used for the only 3 months so depciation = $ 64,000 X 3/12)	$                     16,000
	Depreciation for the year 2021   ($ 2,88,00 * 8 /36) X 9/12 Month =	$                     48,000
	Depreciation for the year 2021 = ($ 2,88,00 * 7 /36) X 3/12 Month =	$                     14,000
	Depreciation for the year 2021	$                     62,000
	Depreciation for the year 2021   ($ 2,88,00 * 7 /36) X 9/12 Month =	$                     42,000
	Depreciation for the year 2021 = ($ 2,88,00 * 6 /36) X 3/12 Month =	$                     12,000
	Depreciation for the year 2022	$                     54,000
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%
	(Depreication / Purchase price )
	Double decline deprection rate = 12.5% * 2 =	25.0%
	Depreciation for the year 1 =
	Purchase Value (Including installantion and delivery Cost) =	22,000
	Depreciation for the year 1 @ 40.00% =	8,800
	Closing Value of year 1	13,200
	Opening Balance of the year 2020	3,03,200
	Depreciation for the year 2020 @ 25.00% for 3 mont ($ 303,200 X 25% X 3/12)	18,950
	Closing Value of year 2020	2,84,250
	Opening Balance of the year 2021	2,84,250
	Depreciation for the year 2021 @ 25.00% =	71,063
	Closing Value of year 2021	2,13,188
	Aswer	Amount
	Answer = A	$                        9,000
	Answer = B	$                        6,400
	Answer = C	$                        7,632
	Answer = D	$                     54,000
	Answer = E	$                     71,063