Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $98
ID: 2486448 • Letter: M
Question
Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $98,000. 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 8,980 hours during 2014, 6,930 hours in 2015, and 4,090 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 STRAIGHT-LINE ONLY, round each year to the nearest whole dollar and round the last year of depreciation as necessary. 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
Straight line method :
Depreciation = cost of asset - salvage value / estimated life of asset
= 98000 - 6000 / 3 = 30667
2014 , depreciation = 30667
2015 , depreciation = 30667
2016, depreciation = 30667
Units of output method :
Depreciation = cost of asset - salvage value / total hours
= 98000 - 6000 / 20000 = 4.6
2014, depreciation = 4.6 * 8980 = 41308
2015, depreciation = 4.6 * 6930 = 31878
2016, depreciation = 4.6 * 4090 = 18814
Double declinning balance method :
2014 depreciation is 30667
2015 depreciation is 33666
2016 depreciation is 33667
Straight line method : depreciation for 3 years is 92000
units of output method , depreciation for 3 years is 92000
Double declining method , depreciation for 3 years is 98000
Double decling method is highest depreciation expenses
Double declinig method is depreciation for 3 years is 98000.