Question

Cougar Corp (December 31st fiscal year end) purchased a piece of machinery, which it will use to produce inventory, on August 1st, 2016 for $450,000. The estimated salvage value is $50,000. The estimated useful life is 4-years. The estimated total activity levels for this machinery over its useful life are production of 1,000,000 units of inventory and working hours of 50,000 hours.

Actual activity for 2016-2018 is as follows: 2016: 100,000 units of inventory produced; 8,500 working hours. 2017: 275,000 units of inventory produced; 14,000 working hours. If necessary, round your answer to the nearest dollar. Do not use dollar signs or decimals.
(A) What is the amount of accumulated depreciation associated with this machinery as of December 31st, 2018 assuming Cougar Corp uses straight-line depreciation?
(B) What is the amount of depreciation expense for this machinery in 2016 assuming Cougar Corp uses activity based depreciation based on working hours?
(C) What is the book value (cost - accumulated depreciation) associated with this machinery as of December 31st, 2017 assuming Cougar Corp uses sum-of-the-years'-digits depreciation method?

Answer 1

accumulated depreciation = 241667

depreciation for 2016 = 6800

book value as December 2017 = 240000

Step-by-step explanation:

solution

we know SLM depreciation per month is express as

depreciation =
`(cost -salvage value)/(useful life)`

put here value

depreciation =
`(450000-50000)/(4)`

depreciation = 100000

and

accumulated depreciation as of 31st December is

accumulated depreciation =
`(100000*(5+12+12))/(12)`

accumulated depreciation = 241667

and

depreciation per hour is

depreciation =
`(cost -salvage value)/(estimated hours)`

depreciation =
`(450000-50000)/(50000)`

depreciation per hour = 8

so depreciation for 2016 = 8500 × 8 = 6800

and

as depreciation by sum of year of digit method

depreciation =
`((cost -salvage value)*useful life)/(sum of year digit)`

so here sum of years digit = 1 + 2 + 3 + 4 = 10

so 1st year depreciation =
`((450000-50000)*4)/(10)` = 160000

and next year depreciation =
`((450000-50000)*3)/(10)` = 120000

so depreciation from august 2016 to july 2017 = 160000

and depreciation from august 2017 to December 2017 =
`(120000*5)/(12)` = 50000

so book value as December 2017 = 450000 - 160000 - 50000

book value as December 2017 = 240000