Exercise 115 Shamrock Corporation purchased a new machine fo

Exercise 11-5 Shamrock Corporation purchased a new machine for its assembly process on August 1, 2017. The cost of this machine was $162,702. The company estimated that the machine would have a salvage value of $17,802 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 21,000 hours. Year-end is December 31 Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places,e.g. 45,892. (a) (b) (c) (d) Straight-line depreciation for 2017 Activity method for 2017, assuming that machine usage was 800 hours Sum-of-the-years\'-digits for 2018 Double-declining-balance for 2018 $

Solution

Exercise 11-5 (a) Straight Line depreciation for 2017 $       12,075 Working: a. Straight Line depreciation = (Cost - Salvage Value)/Useful Life = (162702-17802)/5 = $       28,980 b. Machine used in 2017 = 5 Months c. Depreciation in 2017 = $       28,980 x 5/12 = $     12,075 (b) Activity method for 2017 $    5,520 Working: a. Depreciation rate = (Cost - Salvage Value)/Working hours = (162702-17802)/21000 = $            6.90 per hour b. Depreciation Expense = Usage in hours * Depreciation rate = 800*$ 6.90 = $         5,520 (c) Sum-of-years digit for 2018 $       44,275 Working: a. Sum of Years digit = 1+2+3+4+5 = 15 Depreciation Expense for b. Depreciation in the year of: 5 Months 7 Months 2017 (162702-17802) x 5/15 =         48,300      20,125      28,175 2018 (162702-17802) x 4/15 =         38,640      16,100      22,540 2019 (162702-17802) x 3/15 =         28,980      12,075      16,905 2020 (162702-17802) x 2/15 =         19,320         8,050      11,270 2021 (162702-17802) x 1/15 =           9,660         4,025         5,635 c. Depreciation Schedule: Year Depreciation of current 5 months Depreciation of last 7 months Total Depreciation Expense for the year 2017           20,125 0      20,125 2018           16,100         28,175      44,275 2019           12,075         22,540      34,615 2020              8,050         16,905      24,955 2021              4,025         11,270      15,295 2022 0           5,635         5,635           60,375         84,525 1,44,900 (d) Double declining balance for 2018 $       54,234 Working: Straight line rate = 1/5 = 20% Double declining rate = 2*20% = 40% Year Beginning Book Value Deoreciation Expense Ending Book Value a b=a*40% a-b 2017        1,62,702           27,117        1,35,585 2018        1,35,585           54,234            81,351 2019            81,351           32,540            48,811 2020            48,811           19,524            29,286 2021            29,286           11,715            17,572 Working: Depreciation for 2017 = 162702 x 40% x 5/12 = $        27,117 Exercise 11-7 Depreciation Expense , 2018 $    2,891 Working: Original Depreciation Expense = (9840-1230)/5 =              1,722 Accumulated depreciation till 2017 =              1,722 x 2 =              3,444 Book Value in 2018 before any adjustment 9840 -         3,444 =           6,396 revised salvage Value 615 revised remaining life in years 2 revised depreciation in 2018 = (6396-615)/2 = $       2,891