Question

# Exercise 11-6 Bonita Company purchased equipment for \$228,960 on October 1, 2017. It is estimated that...

Exercise 11-6

Bonita Company purchased equipment for \$228,960 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of \$12,720. Estimated production is 40,800 units and estimated working hours are 20,100. During 2017, Bonita uses the equipment for 520 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Bonita is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.)

 (a) Straight-line method for 2017 \$ (b) Activity method (units of output) for 2017 \$ (c) Activity method (working hours) for 2017 \$ (d) Sum-of-the-years'-digits method for 2019 \$ (e) Double-declining-balance method for 2018 \$

a) Straight line method for 2017 = (228960-12720)/8*3/12 = \$6758

b) Activity method (units of output) for 2017 = (228960-12720/40800)*1100 = \$5830

c) Activity method (working hours) for 2017 = (228960-12720/20100)*520 = \$5595

d) SUm of year digit method for 2019 :

Depreciable base = (228960-12720) = 216240

Sum of year digit = 8+7+6+5+4+3+2+1 = 36

Depreciation expense = 216240*7/36*9/12+216240*6/36*3/12 = \$40545

e) Double decline balance method for 2018:

Double decline rate = 100/8*2 = 25%

2018 Depreciation = 228960*25%*9/12+228960*75%*25%*3/12 = \$53663

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