Question

Swifty Company purchased equipment for $256,800 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 48,000 units and estimated working hours are 20,400. During 2020, Swifty uses the equipment for 600 hours and the equipment produces 1,000 units.

Required:
Compute depreciation expense under each of the following methods. Swifty is on a calendar-year basis ending December 31.

a. Straight-line method for 2020 $enter a dollar amount.
b. Activity method (units of output) for 2020 $enter a dollar amount.
c. Activity method (working hours) for 2020 $enter a dollar amount.
d. Sum-of-the-years'-digits method for 2022 $enter a dollar amount (e) Double-declining-balance method for 2021

Answer 1

a. Straight line method.

Depreciation per annum = ($ 256,800 - $12,000 ) / 8 = $ 30,600.

Depreciation for 2020 = $ 30,600 * ( 3 /12 ) = $ 7,650.

b. Units of output

Depreciation per unit = ( $ 256,800 - $ 12,000 ) / 48,000 = $ 5.1

Depreciation for 2020 = 1,000 * $ 5.1 = $ 5,100.

c. Working hours.

Depreciation per hours = ( $ 256,800 - $ 12,000 ) / 20,400 = $ 12

Depreciation for 2020 = 600 * $ 12 = $ 7,200.

D. Sum of digits method

Sum of years = 8 ( 8 +1 ) / 2 = 36.

Year - 1 used ( 3 / 12 = 0.25)

Year-2 used ( 12 / 12 = 1 )

Remaining ( 8 - 1 - 0.25 = 6.75)

Depreciation for 2022 = ($ 256,800 - $ 12,000 ) * ( 6.75 / 36 )

Depreciation for 2022 = $ 45,900.

e. Double declining balance

Depreciation rate = 200 / 8 = 25 %.

Depreciation for 2020 = $256,800 * 25 % * (3 /12)

Depreciation for 2020 = $16,050.

Depreciation for 2021 = ( $256,800 - $ 16,050) * 25%

Depreciation for 2021 = $60,188.