Question

The cost of equipment purchased by Sheridan, Inc., on June 1, 2020, is $107,100. It is estimated that the machine will have a $6,300 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 50,400, and its total production is estimated at 630,000 units. During 2020, the machine was operated 6,480 hours and produced 59,400 units. During 2021, the machine was operated 5,940 hours and produced 51,800 units.

Compute depreciation expense on the machine for the year ending December 31, 2020, and the year ending December 31, 2021, using the following methods. (Round depreciation per unit to 2 decimal places, e.g. 15.25 and final answers to decimal places, e-g. 45,892.)
2020 2021
(a) Straight-line
(b) Units-of-output
(c) Working hours
(d) Sum-of-the-years'digits
(e) Double-declining-balance (twice the straight-line rate) $

Answer 1

(a) Straight-line

depreciable value = $107,100 - $6,300 = $100,800

depreciation expense per year = $100,800 / 7 = $14,400

depreciation expense 2020 = $14,400

depreciation expense 2021 = $14,400

(b) Units-of-output

depreciable value = $107,100 - $6,300 = $100,800

depreciation expense per unit = $100,800 / 630,000 = $0.16

depreciation expense 2020 = $0.16 x 59,400 = $9,504

depreciation expense 2021 = $0.16 x 51,800 = $8,288

(c) Working hours

depreciable value = $107,100 - $6,300 = $100,800

depreciation expense per working hour = $100,800 / 50,400 = $2

depreciation expense 2020 = $2 x 6,480 = $12,960

depreciation expense 2021 = $2 x 5,940 = $11,880

(d) Sum-of-the-years' digits

depreciable value = $107,100 - $6,300 = $100,800

depreciation expense 2020 = $100,800 x 7/28 = $25,200

depreciation expense 2021 = $100,800 x 6/28 = $21,600

(e) Double-declining-balance (twice the straight-line rate)

depreciation expense 2020 = $100,800 x 2/7 = $28,800

depreciation expense 2021 = $72,000 x 2/7 = $20,571