Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $87
ID: 2448127 • Letter: M
Question
Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $87,200. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $7,200. The equipment was used for 8,590 hours during 2014, 7,370 hours in 2015, and 4,040 hours in 2016.
Required: 1. Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, and 2016 by (a) the straight-line method , (b) the units-of-output method , and (c) the double-declining-balance method . Also determine the total depreciation expense for the three years by each method. (Note: For DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.)
2. What method yields the highest depreciation expense for 2014?
3. What method yields the most depreciation over the three-year life of the equipment?
Explanation / Answer
1 (a) The straight line method Cost 87200 Residual value 7200 No. of useful life 3 Year Depreciation 2014 26667 2015 26667 2016 26667 80000 (b) the units -of -output method No .of operating hours 20,000 Year No. of units produced Depreciation 2014 8590 34360 2015 7370 29480 2016 4040 16160 80000 © Double Declining method Formula :- Double Declining balance depreciation = 2 X straight line depreciation rate X Net book value at the beginning of the year Staright Line depreciation rate = (26667/80000)*100 33.33% Year Net book value at the Double Declining Net book value at the beginning of the year balance depreciation end of the year 2014 87200 58128 29072 2015 29072 19380 9693 2016 9693 2493 7200 80000 2) Double Declining balance method yeilds the highest depreciation expenses for 2014 3) All the methods give same amount of depreciation in total.