Question

Help System Announcements CALCULATOR PRINTER VERSION BACK NEXT Exercise 11-6 Buffalo Company purchased equipment for $223,095 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,840. Estimated production is 39,300 units and estimated working hours are 19,900. During 2017, Buffalo uses the equipment for 530 hours and the equipment produces 1,000 units. Compute depreciation expense under each of the following methods. Buffalo 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 2017 (b) Activity method (units of output) for 2017 (c) Activity method (working hours) for 2017 (d) Sum-of-the-years-digits method for 2019 (e) Double-declining-balance method for 2018

Answer 1

Answer: Depreciation expenses using following methods:

(a) Straight line method

Depreciation expenses for 2017 = (Cost of asset - Salvage value) / Useful life of asset = (223095 - 12840) / 8yrs = $26282

(b) Activity method (Units of output)

Units of output depreciation for 2017 = (Cost of asset - Residual value) / Total units of output = (223095 - 12840) / 39300 = 5.35

Depreciation expenses = Units of output depreciation x Units produced = 5.35 x 1000 units = $5350

(c) Activity method (working hours)

Depreciation expenses for 2017 = (Cost of asset - Residual value) / Estimated working hours*Actual working hours

= (223095 - 12840) / 19900*530 = $5600

(d) Sum of the years' digits method

Sum of years' digits = 8! = 36

For the year ending 2019, it would be depreciation for the 3rd year. Hence the digit that would be used as multiplying factory will be 8-2 = 6.

Depreciation expenses for 2019 = (Cost of asset - Residual value) / Sum of years' digits*6 = (223095 - 12840) / 36*6 = $35043