Blue Company purchased equipment for $266,000 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2020, Blue uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Blue is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.) (a) Straight-line method for 2020 $enter a dollar amount (b) Activity method (units of output) for 2020 $enter a dollar amount (c) Activity method (working hours) for 2020 $enter a dollar amount (d) Sum-of-the-years'-digits method for 2022 $enter a dollar amount (e) Double-declining-balance method for 2021
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Blue Company purchased equipment for $266,000 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2020, Blue uses the equipment for 530 hours and the equipment produces 1,100 units.
Compute
| (a) |
Straight-line method for 2020
|
$enter a dollar amount
|
||
|---|---|---|---|---|
| (b) |
Activity method (units of output) for 2020
|
$enter a dollar amount
|
||
| (c) |
Activity method (working hours) for 2020
|
$enter a dollar amount
|
||
| (d) |
Sum-of-the-years'-digits method for 2022
|
$enter a dollar amount
|
||
| (e) |
Double-declining-balance method for 2021
|
$enter a dollar amount
|
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