Question

Robert Parish Corporation purchased a new machine for its assembly process on January 1, 2014. The cost of this machine was $215,900. The company estimated that the machine would have a salvage value of $15,900 at the end of its service life. Its life is estimated at 4 years, and its working hours are estimated at 40,000 hours. Year-end is December 31.

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated.
(a) Straight-One depreciation for 2014
(b) Activity method for 2014, assuming that machine usage was 860 hours
(c) Sum-of-the-years'-digits for 2015 (d) Double-dectinino-balance for 2015

Answer 1

Part A. $50,000 per year

Part B. $4,300 for the year 2014

Part C. $60,000 for the year 2015

Part D. $53,975 for the year 2015

Step-by-step explanation:

A). Straight Line Depreciation

The straight line formula is as under:

Straight Line Depreciation = (Cost - Salvage Value) / Useful Life

By putting values we have:

Straight Line Depreciation = (215900 - $15,900) / 4 = $50,000 per year

B). Activity Method

The Activity Method formula is as under:

Activity Method = (Cost - Salvage Value) * Hours Used / Total Hours

By putting values we have:

Activity Method = ($215900 - $15,900) * 860 Hrs / 40,000 Hrs

Activity Method = $4,300 for the year 2014

C). Sum of Years Digit Method

The Sum Of The Years Method formula is as under:

Sum Of The Years Method

= (Cost - Salvage Value) * Remaining useful life / Sum of the Year's digits

Here,

Remaining useful life at the year end 2015 is 3 and sum of the year's digits is 10 (1+2+3+4).

By putting values we have:

Sum Of The Years Method = ($215900 - $15,900) * 3 / 10

Sum Of The Years Method = $60,000 for the year 2015

D). Double declining balance Method

The formula for the double declining method is as under:

Double Declining Method = (Carrying Value - Salvage Value) * 2 / Useful Life

By putting values we have:

Double Declining Method For Year 2014 = ($215900) * 2 / 4

= $107,950 for year 2014

Double Declining Method For Year 2015 = ($215900 - $107,950) * 2 / 4

= $53,975 for the year 2015