The value of an asset decreases over a period of time due to wear and tear. This reduction in the value of asset is termed as depreciation . Given: Cost of equipment is $89,000. Salvage value is $5,000 at the end of its service life. Its service life is 7 years. Total working hours are 42,000. Estimated total production is 525,000 units. In 2017, the machine was operated 6,000 hours and produced 55,000 units. In 2018, the machine was operated 5,500 hours and produced 48,000 units. To compute: The depreciation expense on the machine for 2017 and 2018 using the following methods: (a) Straight-line. (b) Units-of-output. (c) Working hours. (d) Sum-of-the-years’-digits. (e) Declining-balance (twice the straight-line rate).

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Chapter 11, Problem 2P

To determine

Introduction: The value of an asset decreases over a period of time due to wear and tear. This reduction in the value of asset is termed as depreciation.

Given:

Cost of equipment is $89,000.

Salvage value is $5,000 at the end of its service life.

Its service life is 7 years.

Total working hours are 42,000.

Estimated total production is 525,000 units.

In 2017, the machine was operated 6,000 hours and produced 55,000 units.

In 2018, the machine was operated 5,500 hours and produced 48,000 units.

To compute: The depreciation expense on the machine for 2017 and 2018 using the following methods:

(a) Straight-line.

(b) Units-of-output.

(c) Working hours.

(d) Sum-of-the-years’-digits.

(e) Declining-balance (twice the straight-line rate).

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