Question

On January 1, 2015, a machine was purchased for $99,900. The machine has an estimated salvage value of $6,660 and an estimated useful life of 5 years. The machine can operate for 111,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2015, 22,200 hrs; 2016, 27,750 hrs; 2017, 16,650 hrs; 2018, 33,300 hrs; and 2019, 11,100 hrs.

Part 1

Your answer is correct.

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 $18,648
(2)		Activity Method
		Year
		2015 - $18,648
		2016 - $23310
		2017 – $13, 986
		2018 – $27,972
		2019 –$ 9,324
(3)		Sum-of-the-Years'-Digits Method
		Year
		2015 - $31,080
		2016 - $24864
		2017 – $18,648
		2018 – $12, 432
		2019 – $6,216
(4)		Double-Declining-Balance Method
		Year
		2015 - $39,960
		2016 - $23,976
		2017 - $14,386
		2018 –$ 8,631
		2019 – $6,287

Part 2

Your answer is incorrect.

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

Year	Straight line Method (Note 1)	Sum of Years’-digits method (Note 2)	Double declining balance Method(Note 3)
2015	$ 13986	$ 23310	$ 29970
2016	$ 18648	$26418	$ 27972
2017	$ 18648	$20202	$ 16783
2018	$ 18648	$13986	$ 10070
2019	$ 18648	$7770	$ 6042
2020	$ 4662	$ 1554	$ 906

Notes:

1. Depreciation under Straight Line Method

= (Cost-Residual Value)/number of years

In the first year the machine is used only for 9 months

={ ($99,900- $6,660)/ 5 years}*9 months/12months=18648*9/12=$ 13986

Depreciation for all other 4 years is $ 18648 per year

Depreciation for last year=$ 99900-$6660-$13986-$18648*4=$4662

2. Depreciation under sum-of-the-years-digits method

Year	Total Depreciable cost	Depreciation Percent	Depreciation expense
2015	$ 93240	(5/15)*9/12	$ 23310
2016	$ 93240	(3/12*5/15)+(9/12*4/15)	$26418
2017	$ 93240	(3/12*4/15)+(9/12*3/15)	$20202
2018	$ 93240	(3/12*3/15)+(9/12*2/15)	$13986
2019	$ 93240	(3/12*2/15)+(9/12*1/15)	$7770
2020	$ 93240	(3/12*1/15)	$ 1554

3. Depreciation under Double Declining Method

Rate of depreciation =20%*2=40%

Year	Depreciation Expense
2015	$ 29970 (40%*$99900*9/12)
2016	$ 27972 ($99900-$ 29970)0.4
2017	$16783.2 approx $ 16783 ($ 69930-$ 27972)*0.4
2018	$ 10069.92 approx$ 10070 ($41958-$16783.2)*0.4
2019	$ 6042 ($ 25175-$10070)*0.4
2020	$ 906