Question

Waterway Corp. purchased machinery for $315,600 on May 1, 2020. It is estimated that it will have a useful life of 10 years, salvage value of $18,600, production of 237,600 units, and working hours of 25,000. During 2021, Waterway Corp. uses the machinery for 2,650 hours, and the machinery produces 30,300 units. From the information given, compute the depreciation charge for 2021 under each of the following methods.
a. straight line $_____:
b. Units-of-output $________:
c. Working Hours $______:
d. Sum-of-the-years-digits $_________:
e. Declining balance (use 20% as the annual rate).

Answer 1

Answer:

Waterway Corp.

a. straight line $__29,700___:

b. Units-of-output $__37,875___:

c. Working Hours $___31,482___:

d. Sum-of-the-years-digits $____48,600_____:

e. Declining balance (use 20% as the annual rate) = $54,704

Explanation:

Cost of machinery purchased on May 1, 2020 = $315,600

Estimated useful life = 10 years

Salvage value = $18,600

Depreciable amount = $297,000

Production units = 237,600

Working hours = 25,000

Straight-line method:

Annual Depreciation Expense = $29,700 ($297,000/10)

Production units:

Depreciation per unit = $1.25 ($297,000/237,600)

Working hours:

Depreciation per hour = $11.88 ($297,000/25,000)

Sum-of-the-years-digits = 55 years;

Depreciation per year = $5,400 ($297,000/55)

Declining balance rate = 20% (100/10 * 2)

During 2021:

Straight-line:

Depreciation expense = $29,700

Machine hours used = 2,650

Depreciation expense = 2,650 * $11.88

= $31,482

Production units = 30,300

Depreciation expense = 30,300 * $1.25

= $37,875

Sum-of-the-years-digits:

Depreciation expense = 9 * $5,400 = $48,600

Declining balance:

2020 = $315,600 * 20%  * 8/12 = $63,120 * 8/12 = $42,080

2021 balance = $273,520

2021 Depreciation expense = $273,520 * 20% = $54,704