Question

On January 1, 2020, Walker Inc. acquired equipment for $56,000. The expected useful life is 10 years and the residual value is $1,120. Total service hours for the equipment are estimated to be 14,000 while actual hours for 2020 were 1,260. Compute depreciation expense in 2020, under the following methods.

A. Straight-line method.
B. Double-declining-balance.
C. Sum-of-the-year digits.
D. Units-of-production.

Answer 1

$5488

$11,200

$9978.18

$4939.20

Step-by-step explanation:

A. Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

($56,000 - $1120) / 10 = $5488

Depreciation expense for each year of the useful life would be $5488

B. Depreciation expense using the double declining method = Depreciation factor x cost of the asset

Depreciation factor = 2 x (1/useful life)

Depreciation factor = 2 x (1/10) = 1/5

1/5 x $56,000 = $11,200

C. Sum-of-the-year digits = (remaining useful life / sum of the years ) x (Cost of asset - Salvage value)

Sum of the years = 1 +2 +3 +4 + 5 + 6 + 7 + 8 + 9 + 10 = 55

Undepreciated life of the asset = 10

10/ 55 x ($56,000 - $1120) = $9,978.18

D. (hours used in year 1 / total number of hours of the machine) x (Cost of asset - Salvage value)

(1260 / 14,000) x ($56,000 - $1120) = $4939.20