Problem 11-2 The cost of equipment purchased by Martinez, Inc., on June 1, 2017,
ID: 2586964 • Letter: P
Question
Problem 11-2 The cost of equipment purchased by Martinez, Inc., on June 1, 2017, is $99,680. It is estimated that the machine will have a $5,600 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 47,040, and its total production is estimated at 588,000 units. During 2017, the machine was operated 6,720 hours and produced 61,600 units. During 2018, the machine was operated 6,160 hours and produced 53,760 units. Compute depreciation expense on the machine for the year ending December 31, 2017, and the year ending December 31, 2018, using the following methods. (Round depreciation per unit to 2 decimal places, e.g. 15.25 and final answers to O decimal places, e.g. 45,892.) 2017 2018 (a) Straight-line (b) Units-of-output (c) Working hours (d) Sum-of-the-years'-digits (e) Double-declining-balance (twice the straight-line rate) s LINK TO TEXTExplanation / Answer
Solution:
a. Straight line
Depreciation expense
2017 2018
(99680 – 5600) /7 = 13440
2017: 13440 x 7/12 = 7840
2018:13440 13440
b. Units of output
(99680 – 5600)/ 588000 = 0.16 units
2017: 0.16 x 61600 = 9856
2018: 0.16 x 53760 = 8602
c.Working hours
(99680 – 5600)/ 47040 = 2.00 hour
2017: 2.00 x 6720 = 13440
2018: 2.00 x 6160 = 12320
d. Sum of the year’s digits
1 + 2+3 +4 +5 + 6 +7 = 28
2017:7/28 x 94080 x7/12 = 13720
2018: 7/28 x 94080 x 5/12 = 9800
6/28 x 94080 x 7/12 = 11760
21560
e. Double declining balance(twice the straight line rate)
Rate = 2/17
2017: 7/12 x 2/7 x 99680 = 16613
2018: 2/7 x (99680 – 16613)= 1186