Question

Depreciation Methods

Gruman Company purchased a machine for $198,000 on January 2, 2019. It made the following estimates:

Service life	5 years or 10,000 hours
Production	180,000 units
Residual value	$ 18,000

In 2019, Gruman uses the machine for 2,000 hours and produces 45,000 units. In 2020, Gruman uses the machine for 1,400 hours and produces 34,000 units. If required, round your final answers to the nearest dollar.

Required:

1. Compute the depreciation for 2019 and 2020 under each of the following methods:

1. Straight-line method

   2019	$
   2020	$

2. Sum-of-the-years'-digits method

   2019	$
   2020	$

3. Double-declining-balance method

   2019	$
   2020	$

4. Activity method based on hours worked

   2019	$
   2020	$

5. Activity method based on units of output

   2019	$
   2020	$

2. For each method, what is the book value of the machine at the end of 2019? At the end of 2020?

1. Straight-line method

   2019	$
   2020	$

2. Sum-of-the-years'-digits method

   2019	$
   2020	$

3. Double-declining-balance method

   2019	$
   2020	$

4. Activity method based on hours worked

   2019	$
   2020	$

5. Activity method based on units of output

   2019	$
   2020	$

3. If Gruman used a service life of 8 years or 15,000 hours and a residual value of $9,000 , what would be the effect on the following under the straight-line, sum-of-the-years'-digits, and double-declining-balance depreciation methods?

Depreciation expense

1. Straight-line method

   2019	$
   2020	$

2. Sum-of-the-years'-digits method

   2019	$
   2020	$

3. Double-declining-balance method

   2019	$
   2020	$

Book value

1. Straight-line method

   2019	$
   2020	$

2. Sum-of-the-years'-digits method

   2019	$
   2020	$

3. Double-declining-balance method

   2019	$
   2020	$

Answer 1

A. STRAIGHT LINE DEPRECIATION = COST- RESIDUAL VALUE/USEFUL LIFE OF ASSETS

2019= $198,000-$18,000/5 YEARS

= $36,000

2020= $36,000

B. SUM OF YEARS DIGIT METHOD

DEPRECATION EXPENSE = REMAINING USEFUL LIFE OF ASSETS*DEPRECIABLE COST/SUM OF YEARS

2019= 5*$ 180,000/15

= $60,000

2020 = 4* $ 180,000/15

= $ 48,000

C.DOUBLE DECLINING BALANCE METHOD

RATE= $198,000/5 = 39,600

= 39,600/198,000= 20%*2=40%

2019= $198,000*40%= $79,200

2020=( $198,000-79,200)*40%= $47,520

D. ACTIVITY BASED ON HOURS = DEPRECIABLE COST * HOURS WOEKED/TOTAL SERVICE LIFE

2019= $180,000*2,000/10,000

= $ 36,000

2020= $ 180,000*1,400/10,000

= $ 25,200

E. ACTIVITY METHOD BASED ON UNITS = DEPRECIABLE COST * PRDOUCTION IN YEAR/TOTAL PRODUCTION

2019= $ 180,000* 45,000UNITS/180,000 UNITS

= $ 45,000

2020= $ 180,000* 34,000 UNITS/180,000 UNITS

= $34,000

BOOK VALUE OF MACHINE

STRAIGHT LINE METHOD

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	36,000	36,000	162,000
2020	$162,000	36,000	72,000	126,000

B. SUM OF YEARS DIGIT METHOD

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	60,000	60,000	138,000
2020	$138,000	48,000	108,000	90,000

C. DOUBLE- DECLINING BALANCE METHOD

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	79,200	79,200	118,800
2020	$118,800	47,520	126,720	70,480

D. ACTIVITY METHOD BASED ON HOURS

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	36,000	36,000	162,000
2020	$162,000	25,200	61,200	136,800

E. ACTIVITY METHOD BASED ON UNITS

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	45,000	45,000	153,000
2020	$153,000	34,000	79,000	119,000

1. IF GRUMAN SERVICE LIFE.......

A. STRAIGHT LINE DEPRECIATION = COST- RESIDUAL VALUE/USEFUL LIFE OF ASSETS

2019= $198,000-$9,000/8 YEARS

= $23,625

2020= $23,625

B. SUM OF YEARS DIGIT METHOD

DEPRECATION EXPENSE = REMAINING USEFUL LIFE OF ASSETS*DEPRECIABLE COST/SUM OF YEARS

2019= 8*$ 189,000/36

= $ 42,000

2020 = 7* $ 189,000/36

= $ 36,750

C.DOUBLE DECLINING BALANCE METHOD

RATE= $198,000/8 = 24,750

= 24,750/198,000= 12.5%*2=25%

2019= $198,000*25%= $ 49,500

2020=( $198,000-49,500)*25%= $37,125

BOOK VALUE OF MACHINE

STRAIGHT LINE METHOD

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	23,625	23,625	174,375
2020	$174,375	23,625	47,250	127,125

B. SUM OF YEARS DIGIT METHOD

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	42,000	42,000	156,000
2020	$156,000	36,750	78,750	119,250

C. DOUBLE- DECLINING BALANCE METHOD

YEAR	BOOK V AT BEGINNING	DEPRECIATION	ACCUMULATED	BOOK VALUE ENDING
2019	$ 198,000	49,500	49,500	148,500
2020	$148,500	37,125	86,625	111,375