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16 April, 14:13

Robert Parish Corporation purchased a new machine for its assembly process on January 1, 2014. The cost of this machine was $215,900. The company estimated that the machine would have a salvage value of $15,900 at the end of its service life. Its life is estimated at 4 years, and its working hours are estimated at 40,000 hours. Year-end is December 31.

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated.

(a) Straight-One depreciation for 2014

(b) Activity method for 2014, assuming that machine usage was 860 hours

(c) Sum-of-the-years'-digits for 2015 (d) Double-dectinino-balance for 2015

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  1. 16 April, 14:32
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    Part A. $50,000 per year

    Part B. $4,300 for the year 2014

    Part C. $60,000 for the year 2015

    Part D. $53,975 for the year 2015

    Explanation:

    A). Straight Line Depreciation

    The straight line formula is as under:

    Straight Line Depreciation = (Cost - Salvage Value) / Useful Life

    By putting values we have:

    Straight Line Depreciation = (215900 - $15,900) / 4 = $50,000 per year

    B). Activity Method

    The Activity Method formula is as under:

    Activity Method = (Cost - Salvage Value) * Hours Used / Total Hours

    By putting values we have:

    Activity Method = ($215900 - $15,900) * 860 Hrs / 40,000 Hrs

    Activity Method = $4,300 for the year 2014

    C). Sum of Years Digit Method

    The Sum Of The Years Method formula is as under:

    Sum Of The Years Method

    = (Cost - Salvage Value) * Remaining useful life / Sum of the Year's digits

    Here,

    Remaining useful life at the year end 2015 is 3 and sum of the year's digits is 10 (1+2+3+4).

    By putting values we have:

    Sum Of The Years Method = ($215900 - $15,900) * 3 / 10

    Sum Of The Years Method = $60,000 for the year 2015

    D). Double declining balance Method

    The formula for the double declining method is as under:

    Double Declining Method = (Carrying Value - Salvage Value) * 2 / Useful Life

    By putting values we have:

    Double Declining Method For Year 2014 = ($215900) * 2 / 4

    = $107,950 for year 2014

    Double Declining Method For Year 2015 = ($215900 - $107,950) * 2 / 4

    = $53,975 for the year 2015
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