Question

Coronado Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was $162,702. The company estimated that the machine would have a salvage value of $17,802 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 21,000 hours. Year-end is December 31.

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated

a. Straight Line Method for 2017

b. Sum-of-the-years'-digits for 2018

c. Double-declining-balance for 2018

Answer 1

a. Straight Line Method for 2017

depreciation expense per year = ($162,702 - $17,802) / 5 years = $28,980

depreciation expense (August to December 2017) = $28,980 x 5/12 = $12,075

b. Sum-of-the-years'-digits for 2018

depreciation expense year 1 = 5/15 x $144,900 = $60,375 / 12 months = $5,031.25 per month

depreciation expense year 2 = 4/15 x $144,900 = $48,300 / 12 months = $4,025

depreciation expense January 2018 - July 2018 = $5,031.25 x 7 = $35,218.75

depreciation expense August 2018 - December 2012 = $4,025 x 5 = $20,125

depreciation expense 2018 = $35,218.75 + $20,125 = $55,343.75

c. Double-declining-balance for 2018

depreciation expense year 1 = 2 x 1/5 x $162,702 = $65,080.80 / 12 months = $5,423.40 per month

depreciation expense year 2 = 2 x 1/5 x $97,621.20 = $39,048.48 / 12 months = $3,254.04

depreciation expense January 2018 - July 2018 = $5,423.40 x 7 = $37,963.80

depreciation expense August 2018 - December 2012 = $3,254.04 x 5 = $16,270.20

depreciation expense 2018 = $37,963.80 + $16,270.20 = $54,234