Question

Blue 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, Blue uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Blue 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 2020 7875 $ (b) Activity method (units of output) for 2020 6930 $ (c) Activity method (working hours) for 2020 6678 $ (d) Sum-of-the-years'-digits method for 2022 $ (e) Double-declining-balance method for 2021 62344 A tA TA tA

Answer 1

Answers

• All answers are correct except [d] Sum of the year digits method for 2022 which is INCOMPLETE.
• Requirement a,b,c,e are all CORRECT.
• Requirement [d]

--Working

A	Cost	$          266,000.00
B	Residual Value	$            14,000.00
C=A - B	Depreciable base	$          252,000.00
1+2+3+4+5+6+7+8	Sum of digits	36

Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
1 (1 Oct 2020 to 30 Sept 2021)	$           252,000.00	[252000 x 8/36]	$         56,000.00	$             56,000.00	$      210,000.00
2 (1 Oct 2021 to 30 Sept 2022)	$           252,000.00	[252000 x 7/36]	$         49,000.00	$           105,000.00	$      161,000.00
3 (1 Oct 2022 to 30 Sept 2023)	$           252,000.00	[252000 x 6/36]	$         42,000.00	$           147,000.00	$      119,000.00

• Depreciation expense for 2022
  = ($49000 x 9 months / 12months) + ($42000 x 3 months / 12months)
  = 36750 + 10500
  = $ 47,250

• Correct Answer for Requirement [d] = $ 47,250