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).