Monte\'s Coffee Company purchased packaging equipment on January 5, 2014, for $9
ID: 2478286 • Letter: M
Question
Monte's Coffee Company purchased packaging equipment on January 5, 2014, for $90,000. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $6,000. The equipment was used for 8,900 hours during 2014, 7,100 hours in 2015, and 4,000 hours in 2016. Required: Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, and 2016 by the straiGht-iine method, the units-of-output method, and the dmjbie-dedining-baiance method. A/so determine the total depreciation expense for the three years by each method. What method yields the highest depredation expense for 2014? What method yields the most depreciation over the three-year life of the equipment?Explanation / Answer
Straight Line Method Cost-Salvage value/No. of Years $90000-6000/3 28000 Dec-14 28000 Dec-15 28000 Dec-15 28000 Total 84000 Depreciation method=Double Declining method 200%*Straight Line Depreciation Rate* book value at the beginning of the year Straight Line Depreciation rate= 100%/3= 33.33% Year Net Book Value at beginning Depreciation 200%*33.33%*Beginning NBV Net Book Value at the end Calculation of Depriciation 2014 90000 59994 30006 90000*200%*33.33% 2015 30006 20002 10004 2016 10004 6669 3335 Total 86665 Unit of Output Method Depreciation=Actual No.of units or hours /Total no. of units or expected hours to be produced*(Cost-Salvage value) Depreciation per unit= Cost-Salvage value/Total no. of hours $90000-6000/20000 4.2 per hour Depreciation 2014 8900 4.2 37380 2015 7100 4.2 29820 2016 4000 4.2 16800 84000 Ans Ans 2 Double declining yield highest depreciation is 2014 of $59994 Ans 3 Double declining balance method yeild hifhest depreciation in three years $86665