Question

Crane Company purchased a new machine on October 1, 2017, at a cost of $91,800. The company estimated that the machine has a salvage value of $7,600. The machine is expected to be used for 69,600 working hours during its 8-year life. Compute depreciation using the following methods in the year indicated.

Answer 1

(a) $5,738 ; $21,516

(b) $1.21 ; $484

Step-by-step explanation:

Missing information:

(a) Declining-balance using double the straight-line rate for 2017 and 2018.

(b) Calculate the depreciation cost per hour. Depreciation cost per hour Units-of-activity for 2017, assuming machine usage was 400 hours.

(a) Depreciation under double declining rate is double the straight line rate :

= (1 ÷ Straight line rate ] × 2

= (1 ÷ 8) × 2

= 0.25 or 25%

Depreciation for each year :

= Opening book value × Depreciation rate × (Months used ÷ 12 )

Months used in 2017 = October to December = 3 months

So, Depreciation for 2017 :

= $91,800 × 25% × 3/12

= $5,738

Book value at the beginning of 2018:

= Book value in 2017 - Depreciation for 2017

= $91,800 - $5,738

= $86,062

Depreciation for 2018 :

= $ 86,062 × 25% × 12/12

= $21,516

(b) Depreciation cost per hour :

= (Cost - Estimated salvage value) ÷ Expected working hours

= ($91,800 - $7,600) ÷ 69,600

= $1.21

Depreciation for 2017 :

Number of hours × Depreciation per hour

= 400 × $1.21

= $484