Question

Bridgeport Company purchased equipment for $228,800 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $13,200. Estimated production is 39,200 units and estimated working hours are 19,800. During 2017, Bridgeport uses the equipment for 530 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Bridgeport 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

Answer 1

a) Straight Line Depreciation = (Cost - Salvage Value) / Useful Life

= (228800 - 13200) / 8 = $26950

Depreciation for the year 2017 will be only for 3 month since euqipment was purchased on 1st October so

26950 X 3/12 = $ 6737.50

b) Activity Method (unites for Output) = (Cost - Salvage Value) X Acutal Activity performed during the period / Estimated lifetime activity

= (228800 - 13200) X 1100 / 39200 = 6050

Depreciation expense for 2017 = $6050

c) Acitvity Method (working hours) =

Depreciation expenses = (228800 - 13200) X 530 / 19800 = 5771.70

d) Sum of the year's digits method for 2019 =

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

Depreciable cost = Cost - Salavge value = 228800-13200 = 215600

Depreciation for 2017 = 215600 {(3/12) X (8/36)} = $11977.78

Depreciation for 2018 = 215600 [{(3/12) X (7/36)} + {(9/12) X (8/36)}] = $46413.89

Depreciation for 2019 = 215600 [{(3/12) X (6/36)} + {(9/12) X (7/36)}] = $40425

e) Double Declining Balance method

Depreciation rate = (100% / Useful Life) x 2 = (100/8) X 2 = 25%

Depriciation for 2017 = 228800 X 25% X 3/12 = 14300

Depreciation for 2018 = (228800-14300) x 25% = $53625