Question

On January 1, 2018, a machine was purchased for $120,000. The machine has an estimated salvage value of $9,600 and an estimated useful life of 5 years. The machine can operate for 120,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2018, 24,000 hrs; 2019, 30,000 hrs; 2020, 18,000 hrs; 2021, 36,000 hrs; and 2022, 12,000 hrs.

Compute the annual depreciation charges over the machine’s life assuming a December 31 year-end for each of the following depreciation methods. (Round answers to 0 decimal places, e.g. 45,892.)

1.		Straight-line Method		$
2.		Activity Method
		Year
		2018		$
		2019		$
		2020		$
		2021		$
		2022		$
3.		Sum-of-the-Years'-Digits Method
		Year
		2018		$
		2019		$
		2020		$
		2021		$
		2022		$
4.		Double-Declining-Balance Method
		Year
		2018		$
		2019		$
		2020		$
		2021		$
		2022		$

Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.)

Year		Straight-line Method		Sum-of-the-years'-digits method		Double-declining-balance method
2018		$		$		$
2019
2020
2021
2022
2023

Answer 1

1. straight line method = (cost – salvage value)/estimated life = (120000-9600)/5 = $22080

2. Activity method

2018 (120000-9600)/120000*24000	$22080
2019 (120000-9600)/120000*30000	$27600
2020 (120000-9600)/120000*18000	$16560
2021 (120000-9600)/120000*36000	$33120
2022 (120000-9600)/120000*12000	$11040

3. Sum-of-the-Years'-Digits Method

Sum-of-the-Years'-Digits = 5+4+3+2+1 = 15

2018 (120000-9600)*5/15	$36800
2019 (120000-9600)*4/15	$29440
2020 (120000-9600)*3/15	$22080
2021 (120000-9600)*2/15	$14720
2022 (120000-9600)*1/15	$7360

4. Double-Declining-Balance Method                     

Depreciation rate = 1/estimated life * 2 = 1/5 *2 = 40%

2018 (120000*40%)	$48000
2019 (120000-48000)*40%	$28800
2020 (120000-48000-28800)*40%	$17280
2021 (120000-48000-28800-17280)*40%	$10368
2022 ((120000-48000-28800-17280-10368)-9600	$5952

Part B

	Straight-line Method	Sum-of-the-Years'-Digits Method	Double-Declining-Balance Method
2018	16560	27600	36000
2019	22080	31280	33600
2020	22080	23920	20160
2021	22080	16560	12096
2022	22080	9200	7258
2023	5520	1840	1286

22080*9/12 = 16560

22080*3/12 = 5520

(120000-9600)*5/15*9/12= 27600

((120000-9600)*5/15*3/12)+((120000-9600)*4/15*9/12) = 31280

((120000-9600)*4/15*3/12)+((120000-9600)*3/15*9/12) = 23920

((120000-9600)*3/15*3/12)+((120000-9600)*2/15*9/12) = 16560

((120000-9600)*2/15*3/12)+((120000-9600)*1/15*9/12) = 9200

((120000-9600)*1/15*3/12) = 1840

(120000*40%)*9/12 = 36000

(120000-36000)*40% = 33600

(120000-36000-33600)*40% = 20160

(120000-36000-33600-20160)*40% = 12096

(120000-36000-33600-20160-12096)*40% = 7258

(120000-36000-33600-20160-12096-7258)-9600 = 1286