Question

The cost of equipment purchased by Tamarisk, Inc., on June 1, 2020, is $142,800. It is estimated that the machine will have a $8,400 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 67,200, and its total production is estimated at 672,000 units. During 2020, the machine was operated 7,020 hours and produced 64,350 units. During 2021, the machine was operated 6,435 hours and produced 56,160 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 0 decimal places, e.g. 45,892.) 2020 2021 0
(a) Straight-line - 0
(b) Units-of-output - 0
(c) Working hours - 0
(d) Sum-of-the-years-digits - 0
(e) Double-declining-balance (twice the straight-line rate) $

Answer 1

A. 2020 $11,200

2021 $19,200

B. 2020 $12,870

2021 $11,232

C. 2020 $14,040

2021 $12,870

D. 2020 $19,600

2021 $30,800

E. 2020 $23,799

2021 $33,999

Step-by-step explanation:

Computation depreciation expense on the machine for the year ending December 31, 2020, and the year ending December 31, 2021,

(A)Computation for depreciation expense using Straight-line method

Using this formula

(cost-salvage) / useful life x depreciation from purchase date to end year

Let plug in the formula

2020

Depreciation expense= $142,800 - 8,400 / 7

Depreciation expense= 19,200 x (7/12)

Depreciation expense= $11,200 (for 2020)

2021

Depreciation expense= $142,800 - 8,400 / 7

Depreciation expense= 19,200 (for 2021)

(B) Computation for depreciation expense using Units-of-output Method

Using this formula

(cost - salvage) / total units produced x estimated units 2020/21

Let plug in the formula

Depreciation expense 2020:

Depreciation expense= ($142,800 - 8,400) / 672,000) x 64,350

Depreciation expense= 0.20x 64,350

Depreciation expense= $12,870

Depreciation expense 2021:

Depreciation expense=($142,800 - 8,400) / 672,000) x 56,160

Depreciation expense= 0.20x 56,160

Depreciation expense= $11,232

(C) Computation for depreciation expense using Working hours

Using this formula

(cost-salvage) / total working hours x estimated working hours 2020/21

Let plug in the formula

Depreciation expense 2020:

Depreciation expense= (($142,800 - 8,400)/67,200) x 7,020

Depreciation expense= 2 x 7,020

Depreciation expense= $14,040

Depreciation expense 2021:

Depreciation expense= ($142,800 - 8,400)/67,200) x 6,435

Depreciation expense= 2 x 6,435

Depreciation expense= $12,870

(D)Computation for depreciation expense using

Sum-of-the-years'-digits

n(n+1)/2

Depreciation expense 2020:

Depreciation expense= ($142,800 - 8,400)x 7/28 x 7/12

Depreciation expense=$134,400 x (7/28) x (7/12)

Depreciation expense= 33,600 x (7/12)

Depreciation expense= $19,600

Depreciation expense 2021:

Depreciation expense= (($142,800 - 8,400) x 7/28 x 5/12) +(($142,800-8,400) x 6/28 x 7/12)

Depreciation expense= $14,000 + $16,800

Depreciation expense= $30,800

(E) Computation for depreciation expense using Double-declining-balance

First step

1 / useful life x 100 x 2

= 1/7 x 100 x 2

= 28,57%

Now let calculate the Depreciation expense for 2020 and 2021

Depreciation expense 2020:

Depreciation expense=142,800 x 28.57 x (7/12)

Depreciation expense= $23,799

Depreciation expense 2021:

Depreciation expense=(142,800 -$23,799 ) x 28.57

Depreciation expense= $33,999