Question

Sunland Company purchased equipment for $222,000 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $13,200. Estimated production is 36,000 units and estimated working hours are 20,000. During 2020, Sunland uses the equipment for 550 hours and the equipment produces 1,000 units.

Compute depreciation expense under each of the following methods. Sunland 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 2020
(b)		Activity method (units of output) for 2020
(c)		Activity method (working hours) for 2020
(d)		Sum-of-the-years'-digits method for 2022
(e)		Double-declining-balance method for 2021

Answer 1

a)	Straight Line
	Cost			$ 222,000.00
	Salvage value			$   13,200.00
	Depreciable cost			$ 208,800.00
	Service Life			8
	Depreciation expense			$   26,100.00
	For 2020	$ 26100 x 3/12 =		$     6,525.00

b)	Units of output
	Cost			$ 222,000.00
	Salvage value			$   13,200.00
	Depreciable cost			$ 208,800.00
	Total production units			36000
	Depreciation expense per unit			$             5.80
	For 2020	$ 5.8 x 1000		$     5,800.00

c)	Working hours
	Cost			$ 222,000.00
	Salvage value			$   13,200.00
	Depreciable cost			$ 208,800.00
	Total working hours			20000
	Depreciation expense per hour			$           10.44
	For 2020	$ 10.44 x 550		$     5,742.00

d)	Sum of the years' digits
	Cost						$ 222,000.00
	Salvage value						$   13,200.00
	Depreciable cost						$ 208,800.00
	Total sum of the years			(8 + 7 + 6 + 5 + 4 + 3 + 2 + 1)			36
	For 2022	($ 208800 x 7/36 x 9/12) + ($ 208800 x 6/36 x 3/12)					$         39,150

e)	Double Declining Balance
	Cost				$ 222,000.00
	Rate of depreciation (100% x 2/8)				25%
	For 2020	($ 222000 x 25% x 3/12)			$         13,875
	For 2021	[($ 222000 - $ 13875) x 25%]			$         52,031