Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $10
ID: 2490671 • Letter: M
Question
Monte’s Coffee Company purchased packaging equipment on January 5, 2014, for $105,200. 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 8,520 hours during 2014, 6,940 hours in 2015, and 4,540 hours in 2016.
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)
Depreciation for 2014 by the straight-line method
105200 – 7200 / 3 = $32666.67 or $32667
As packaging equipment was purchased on January 5, 2014 thus depreciation for 2014 will be 32666.67 x 361 / 365 = $32308.67 or $32309
Depreciation for 2015 by the straight-line method
105200 – 7200 / 3 = $32666.67 or $32667
Depreciation for 2016 by the straight-line method
105200 – 7200 / 3 = $32666.67 or $32667
(b)
Depreciation for 2014 by the units-of-output method
(105200 – 7200) x 8520 / 20000 = $41748
Depreciation for 2015 by the units-of-output method
(105200 – 7200) x 6940 / 20000 = $34006
Depreciation for 2016 by the units-of-output method
(105200 – 7200) x 4540 / 20000 = $22246
(c)
Rate of depreciation = 32666.6667 x 100 / 98000 = 33.3333 %
Double decline rate = 66.6667%
Depreciation for 2014 by the double-declining-balance method
105200 x 66.6667 / 100 = $70133.36 or $70133
Depreciation for 2015 by the double-declining-balance method
(105200 – 70133) x 66.6667 / 100 = $23378.01 or $23378
Depreciation for 2016 by the double-declining-balance method
(35067 – 23378) x 66.6667 / 100 = $7792.67 or $7793
Depreciation by straight line method for all three years (2014, 2015 and 2016) = $97643
Depreciation by double declining method for all three years (2014, 2015 and 2016) = $101304
Depreciation by units-of-output method for all three years (2014, 2015 and 2016) = $98000
(2)
Double-declining-balance method yields the highest depreciation expense for 2014 that is $70133.
(3)
Double-declining-balance method yields the most depreciation over the three-year life of the equipment that is $101304.