Montes Coffee Company purchased packaging equipment on Janua

Monte\'s Coffee Company purchased packaging equipment on January 5, 2014 , for $90,000. The equipment was expected to have a useful lite of three hours, and a residual value of $6,00. The equipment was used for 8,900 hours during 2014, 7,100 hours in 2015, and 4,000 hours in 2016 Required: of depreciation expense for the years ended December 31, 2014, 2015, and 2016 by (a) the straight-line method, (o) the and (c) the double-declining-balance Also method.(Note: For DECLINING BALANCE ONLY round the answer for each year to the nearest whole dolilar) balance method. Also determine the total depreclation expense for the three years by each 2. What method yields the highest depreclation expense for 2014 3. What method yields the most depreciation over the three-year life of the equipment? Check My Work Previous Next 2

Solution

Answer 1.

Straight-line Depreciation Method:

Cost of Equipment = $90,000
Residual Value = $6,000
Useful Life = 3 years

Annual Depreciation = (Cost of Equipment - Residual Value) / Useful Life
Annual Depreciation = ($90,000 - $6,000) / 3
Annual Depreciation = $28,000

Depreciation for 2014 = $28,000
Depreciation for 2015 = $28,000
Depreciation for 2016 = $28,000

Units-of-output Depreciation Method:

Cost of Equipment = $90,000
Residual Value = $6,000
Expected number of operating hours = 20,000

Depreciation per operating hours = (Cost of Equipment - Residual Value) / Expected number of operating hours
Depreciation per operating hours = ($90,000 - $6,000) / 20,000
Depreciation per operating hours = $4.20

2014:

Number of Operating hours = 8,900
Depreciation for 2014 = 8,900 * $4.20 = $37,380

2015:

Number of Operating hours = 7,100
Depreciation for 2015 = 7,100 * $4.20 = $29,820

2016:

Number of Operating hours = 4,000
Depreciation for 2016 = 4,000 * $4.20 = $16,800

Double-declining-balance Depreciation Method:

Straight-line Depreciation Rate = 1 / Useful Life
Straight-line Depreciation Rate = 1 / 3 = 0.3333

Double-declining-balance Depreciation Rate = 2 * Straight-line Depreciation Rate
Double-declining-balance Depreciation Rate = 2 * 0.3333
Double-declining-balance Depreciation Rate = 0.6666

Depreciation for 2014 = $90,000 * 0.6666 = $59,994

Book Value at the end of 2014 = $90,000 - $59,994
Book Value at the end of 2014 = $30,006

Depreciation for 2015 = $30,006 * 0.6666 = $20,002

Book Value at the end of 2015 = $30,006 - $20,002
Book Value at the end of 2015 = $10,004

Depreciation for 2016 = $10,004 - $6,000 = $4,004

Book Value at the end of 2016 = $10,004 - $4,004
Book Value at the end of 2016 = $6,000

Answer 2.

Double-declining-balance method yields the highest depreciation expense for 2014.

Answer 3.

All three depreciation method yields $86,000 of depreciation expense over the three-year life of the equipment.