# Computing Depreciation Expenses

Brief Exercise 11-2

Lockard Company purchased machinery on January 1, 2014, for \$149,520. The machinery is estimated to have a salvage value of \$14,952 after a useful life of 8 years.

Compute 2014 depreciation expense using the straight-line method.

Depreciation = (Cost – Residual value)/Useful life

Depreciation expense for 2014

= (\$149,520-\$14,952) ×1/8 ×12/12

= \$134,568×1/8

=\$16,821

Compute 2014 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2014.

Depreciation = (Cost – Residual value)/Useful life

Depreciation expense for 2014 if the machine was purchased on September 1, 2014 would be:

= (\$149,520-\$14,952) ×1/8 × 4/12

= \$134,568×1/8 ×4/12

=\$5,607

Brief Exercise 11-4

Lockard Company purchased machinery on January 1, 2014, for \$127,920. The machinery is estimated to have a salvage value of \$12,792 after a useful life of 8 years.

Compute 2014 depreciation expense using the double-declining-balance method.

Useful life = 8 years, Straight line depreciation rate = 1/8= 0.125 ×100% =12.5% per year

The depreciation rate for the double-declining method would be:

=12.5%×2 = 25% per year

Depreciation expense for 2104= \$127,920 ×25% ×12/12

=\$31,980

Compute 2014 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2014.

Depreciation expense= \$127,920 ×25% ×3/12

=\$7,995

Brief Exercise 11-9

Everly Corporation acquires a coal mine at a cost of \$654,800. Intangible development costs total \$163,700. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is \$130,960), after which it can be sold for \$261,920. Everly estimates that 6,548 tons of coal can be extracted.

If 1,146 tons are extracted the first year, prepare the journal entry to record depletion.

Depletion expense = cost –salvage value/Estimated number of units × number of units extracted

Cost per ton = \$654,800 + \$163,700 + \$130,960 -\$261,920

6,548

= 105

Total depletion = \$105 ×1,146 = \$120,330

 Everly Corporation General Journal Date Description Debit Credit Depletion expense Accumulated Depletion 120,330 120,330

Exercise 11-6

Muggsy Bogues Company purchased equipment for \$320,275 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of \$20,040. Estimated production is 40,300 units and estimated working hours are 19,300. During 2014, Bogues uses the equipment for 560 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31.

1. Straight-line method for 2014

Straight line method

Depreciation = (Cost – residual value)/useful life

= (\$320,275 – \$20,040) ×1/8 ×3/12

= \$300,235 ×3/96 = \$9,382

1. Activity method (units of output) for 2014

Depreciation per unit = (cost – salvage value)/Estimated units of production

= (\$320,275-\$20,040)/40,300 units

= \$7.45

Depreciation expense for 2014

=1,100 units ×\$7.45 =\$8,195

1. Activity method (working hours) for 2014

Depreciation per unit = (cost – salvage value)/Estimated units of production of hours

= (\$320,275-\$20,040)/19,300 hours

=\$15.56

Depreciation expense for 2014

=560 hours ×\$15.56

=\$8,713.60

1. Sum-of-the-years’-digits method for 2016

The sum of the years’ digit method is given by

= n(n+1)

2

Where n= the useful life in years.

=8(8+1)/2 = 36

Depreciable amount = \$320,275 – 20,040

=\$300,235

Depreciation for Oct 1, 2014 equipment purchase = \$300,235 ×8/36 =\$66,719

Depreciation for 2nd equipment year 2015 = \$300,235×7/36 = \$58,379

Depreciation for 3rd equipment year 2016= \$300,235× 6/36= \$50,039

Depreciation for year 2016 = 9 months of equipment year 2 + 3 months of equipment year 3

=9/12×\$58,379 + 3/12× \$50,039

= \$43,789 + \$12,510

= \$56,299

1. Double-declining-balance method for 2015

Useful life = 8 years, Straight line depreciation rate = 1/8= 0.125 ×100% =12.5% per year

The depreciation rate for the double-declining method would be:

=12.5%×2 = 25% per year

For 2014, depreciation = \$320,275×25%

= \$80,069

For 2015, \$320,275 – \$80,069 =\$240,206

=\$240,206 ×25%

=\$60,052

Depreciation for 2015 = 9 months of machine year 1 + 3 months of machine year 2

= 9/12×\$80,069 + 3/12×\$60,052

= \$60,052 + \$15,013

=\$75,065

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