Question

Oriole Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was $134,406. The company estimated that the machine would have a salvage value of $14,706 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 21,300 hours. Year-end is December 31. Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places, e.g. 45,892.)

(a) Straight-line depreciation for 2017
(b) Activity method for 2017, assuming that machine usage was 770 hours
(c) Sum-of-the-years'-digits for 2018
(d) Double-declining-balance for 2018

Answer 1

The depreciation expenses for:

(a) Straight-line depreciation for 2017: $23,940 which is calculated as : ( Cost - Salvage value)/ Useful life = (134,406 - 14,706)/5 = $23,940.

(b) Activity method for 2017: $4,327 which is calculated as: ( Cost - Salvage value) / Total estimated working hours * Actual working hours in 2017 = ( 134,406 - 14,706) / 21,300 * 770 = $4,327.

(c) Sum-of-the-years'-digits for 2018: $31,920 which is calculated as: (Remaining useful life / Sum of the year's digits) * ( Cost - Salvage value) = [4/(5+4+3+2+1)] * ( 134,406 - 14,706) = $31,920.

(d) Double-declining-balance for 2018: $32,233; which is calculated as below:

Book value of machine as at the beginning of 2018 * 1/5 * 2

in which: Book value of machine as at the beginning of 2018 = Cost of machine - Depreciation expenses in 2017 = 134,306 - 134,306 * 2 * 1/5 = $80,583.60

So, Depreciation expenses for 2018 is: 80,583.60 * 1/5 * 2 = $32,233.

Step-by-step explanation: