Question

The cost of equipment purchased by Bonita, Inc., on June 1, 2020, is $119,700. It is estimated that the machine will have a $10,500 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 54,600, and its total production is estimated at 728,000 units. During 2020, the machine was operated 6,600 hours and produced 60,500 units. During 2021, the machine was operated 6,050 hours and produced 52,800 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 (a) Straight-line $ $ (b) Units-of-output $ $ (c) Working hours $ $ (d) Sum-of-the-years'-digits $ $ (e) Double-declining-balance (twice the straight-line rate)

Answer 1

(a) Straight-line $ $

straight line depreciation expense = $109,200 / 7 = $15,600

depreciation expense 2020 = $15,600 x 7/12 = $9,100

depreciation expense 2020 = $15,600

(b) Units-of-output $ $

depreciation expense per unit of output = $109,200 / 728,000 = $0.15 per unit

depreciation expense 2020 = $0.15 x 60,500 = $9,075

depreciation expense 2020 = $0.15 x 52,800 = $7,920

(c) Working hours $ $

depreciation expense per working hour = $109,200 / 54,600 = $2 per working hour

depreciation expense 2020 = $2 x 6,600 = $13,200

depreciation expense 2020 = $2 x 6,050 = $12,100

(d) Sum-of-the-years'-digits

total years = 7 + 6 + 5 + 4 + 3 + 2 + 1 = 28

depreciation expense 2020 = $109,200 x 7/28 x 7/12 = $15,925

depreciation expense 2021 = ($27,300 - $15,925) + (109,200 x 6/28 x 7/12) = $25,025

(e) Double-declining-balance (twice the straight-line rate)

depreciation expense 2020 = $119,700 x 2/7 x 7/12 = $19,950

depreciation expense 2021 = ($34,200 - $19,950) + ($85,500 x 2/7 x 7/12) = $28,500

Step-by-step explanation:

depreciable value = $119,700 - $10,500 = $109,200

useful life = 7 years

working hours = 54,600

production = 728,000 units