Question

Stellar Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was $124,974. The company estimated that the machine would have a salvage value of $13,674 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 23,000 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 830 hours

$

(c) Sum-of-the-years'-digits for 2018 $ (d) Double-declining-balance for 2018

$

Answer 1

a)straight line method = [cost -salvage]/useful life in years

= [124974-13674]/5

= 22260 per year

depreciation for 2017 = 22260 * 5/12= 9275

b)Activity of method = [cost -salvage]/useful life in working hours

=[124974-13674]/23000

= $ 4.84 per hour

depreciation for 2017= 4.84 *830 = $ 4017

c)sum of digit = [cost-salvage ] *n/15

= [124974-13674] *4/ 15

= 111300*4/15

= 29680

**sum of digit b = 1+2+3+4+5= 15

d)depreciation rate = 2/useful life

=2/5= .40 or 40%

depreciation for 2017 = 124974*.40 * 5/12 =20829

book value at end of 2017 124974 -20829 = 104145

depreciation for 2018 = 104145*.4= 41658