Question

On January 1, 2018, Canseco Plumbing Fixtures purchased equipment for $36,000. Residual value at the end of an estimated four-year service life is expected to be $6,000. The company expects the machine to operate for 20,000 hours. The machine operated for 2,500 and 3,300 hours in 2018 and 2019, respectively.

a. Calculate depreciation expense for 2018 and 2019 using straight line method.
b. Calculate depreciation expense for 2018 and 2019 using sum-of-the-years'-digits method.
c. Calculate depreciation expense for 2018 and 2019 using double-declining balance method.
d. Calculate depreciation expense for 2018 and 2019 using units-of-production method (using machine hours).
  

Answer 1

a. Calculate depreciation expense for 2018 and 2019 using straight line method.

Straight line dep = (36000-6000/4) = 7500 per year

2018 dep = 7500

2019 dep = 7500

b. Calculate depreciation expense for 2018 and 2019 using sum-of-the-years'-digits method.

Depreciable base = 36000-6000 = 30000

Sum of year digit = 4+3+2+1 = 10

2018 dep = 30000*4/10 = 12000

2019 dep = 30000*3/10 = 9000

c. Calculate depreciation expense for 2018 and 2019 using double-declining balance method.

Straight line rate = 100/4=25%

Double decline rate = 25*2=50%

2018 dep = 36000*50% = 18000

2019 dep = 36000*50%*50% = 9000

d. Calculate depreciation expense for 2018 and 2019 using units-of-production method (using machine hours).

Depreciable base = 36000-6000 = 30000

Depreciation rate = 30000/20000 = 1.5 per machine hour

2018 dep = 2500*1.5 = 3750

2019 dep = 3300*1.5 = 4950