Question

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Question 3 --/2 View Policies Current Attempt in Progress Wildhorse Company purchased equipment for $266,000 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2020, Wildhorse uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Wildhorse 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 O 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 AAAAA (d) Sum-of-the-years'-digits method for 2022 (e) Double-declining-balance method for 2021

Answer 1

A. Straight Line Method

>> Depreciable asset = Cost of Asset - Salvage value = $ 266,000 - $ 14,000 = $ 252,000.

>> Depreciation per annum = Depreciable asset / Useful life of asset = $ 252,000 / 8 = $ 31,500.

>> Depreciation for 2020 = $ 31,500 * ( 3 / 12 ) = $ 7,875.

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B. Activity Method - units produced

>> Depreciable asset = Cost of Asset - Salvage value = $ 266,000 - $ 14,000 = $ 252,000.

>> Depreciation per unit = Deprecible asset / total units = $ 252,000 / 40,000 = $ 6.3

>> Depreciation for 2020 = 1100 * $ 6.3 = $ 6,930.

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C. Activity Method - Working hours

>> Depreciable asset = Cost of Asset - Salvage value = $ 266,000 - $ 14,000 = $ 252,000.

>> Depreciation per hour = Deprecible asset / total hours = $ 252,000 / 20,000 = $ 12.6

>> Depreciation for 2020 = 530 * $ 12.6 = $ 6,678.

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D. Sum of years digit method

>> Depreciable asset = Cost of Asset - Salvage value = $ 266,000 - $ 14,000 = $ 252,000.

>> Sum of years = n ( n + 1 ) / 2 = 8 ( 8 + 1 ) / 2 = 36.

>> Depreciation for 2022 = $ 252,000 * ( 6.75 / 36 ) = $ 47,250.

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E. Double declining method.

Depreciation rate = 200 / useful life = 200 / 8 = 25 %.

Depreciation for 2020 = $ 266,000 * 25 % * ( 3 /12 ) = $ 16,625.

Depreciation for 2021 = ( $ 266,000 - $ 16,625 ) * 25 % = $ 62,344