Robert Parish Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $117,900. The company estimated that the machine would have a salvage value of $12,900 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. Instructions Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. a. Straight-line depreciation for 2020. b. Activity method for 2020, assuming that machine usage was 800 hours. c. Sum-of-the-years’-digits for 2021. d. Double-declining-balance for 2021.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Robert Parish Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $117,900. The company estimated that the machine would have a salvage value of $12,900 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.
Instructions
Compute the
a. Straight-line depreciation for 2020.
b. Activity method for 2020, assuming that machine usage was 800 hours.
c. Sum-of-the-years’-digits for 2021.
d. Double-declining-balance for 2021.
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