Question

Depreciation Methods Gruman Company purchased a machine for $220,000 on January 2, 2016. It made the following estimates: Service life 5 years or 10,000 hours Production 200,000 units Residual value $20,000 In 2016, Gruman uses the machine for 1,800 hours and produces 44,000 units. In 2017, Gruman uses the machine for 1,500 hours and produces 35,000 units. If required, round your final answers to the nearest dollar. Required: 1. Compute the depreciation for 2016 and 2017 under each of the following methods: a. Straight-line method 2016 $ 2017 $ b. Sum-of-the-years'-digits method 2016 $ 2017 $ c. Double-declining-balance method 2016 $ 2017 $ Activity method hased on hours worked

Answer 1

Answer:

a. Straight line depreciation = $220,000 - 20,000 / 5 = $40,000 per year

2016 = $40,000

2017 = $40,000

b. Sum of the years digits method:

2016 = $220,000-20,000 * 5/15 = $66,667

2017 = $220,000-20,000 * 4/15 = $53,333

c. Double declining balance method:

Depreciation rate = 100/5*2 = 40%

2016 = $220,000*40% = $88,000

2017 = $220,000-88,000 * 40% = $52,800

d. Activity method based on hours worked:

Depreciation rate = $(220,000-20,000)/10,000 = $20 per hour

2016 = 1,800*$20 = $36,000

2017 = 1,500*$20 = $30,000

e. Activity method based on units of output:

Depreciation rate = $(220,000-20,000)/200,000 = $1 per unit

2016 = 44,000*$1 = $44,000

2017 = 35,000*$1 = $35,000

2.

a. Straight line method:

2016 = $220,000-40,000 = $180,000

2017 = 180,000-40,000 = $140,000

b. Sum of the years digits method:

2016 = $220,000-66,667 = $153,333

2017 = $153,333-53,333 = $100,000

c. Double declining balance method:

2016 = $220,000-88,000 = $132,000

2017 = $132,000-52,800 = $79,200

d. Activity method based on hours worked:

2016 = $220,000-36,000 = $184,000

2017 = $184,000-30,000 = $154,000

e. Activity method based on units of output:

2016 = $220,000-44,000 = $176,000

2017 = $176,000-35,000 = $141,000

3. Depreciation expense:

a. Straight line method:

Depreciation expense = $220,000-10,000/8 = $26,250 per year

2016 = $26,250

2017 = $26,250

b. Sum of the years digit method:

2016 = $220,000-10,000 * 8/36 = $46,667

2017 = $220,000-10,000 * 7/36 = $40,833

c. Double declining balance method:

Depreciation rate = 100/8*2 = 25%

2016 = $220,000*25% = $55,000

2017 = $220,000-55,000 * 25% = $41,250

Book value:

a. Straight line method:

2016 = $220,000-26,250 = $193,750

2017 = $193,750-26,250= $167,500

b. Sum of the years digit method:

2016 = $220,000-46,667 = $173,333

2017 = $173,333-40,833 = $132,500

c. Double declining balance method:

2016 = $220,000-55,000 = $165,000

2017 = $165,000-41,250 = $123,750