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Chapter 11: Q3BE (page 584)

Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the sum-of-the-years’-digits method. (b) Compute 2017 depreciation expense using the sum-of-the-years’-digits method, assuming the machinery was purchased on April 1, 2017.

Lockard Company purchased machinery on January 1, 2017, for \(80,000. The machinery is estimated to have a salvage value of \)8,000 after a useful life of 8 years.

Short Answer

Expert verified
  1. Depreciation = $16,000
  2. Depreciation = $12,000

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Depreciation

The term depreciation refers to the loss of value in assets due to abrasion and erosion over time. Companies use different methods to value their assets, but straight-line depreciation is the easiest one to apply.

02

(a) Computing depreciation for 2017

Calculating the sum of year digit

Sum of year digit=n(n+1)2=8(8+1)2=36

role="math" localid="1652950543635" Depreciation=Cost of asset−Salvage value×Number of yearSum of year digits=$80,000−$8,000×836=$72,000×836=$16,000


03

(b) Computing depreciation for the machinery was purchased on April 1, 2017.

Depreciation=[(Cost of asset−Salvage value)×Number of yearSum of year digits]×Number of monthMonth in​ year=[($80,000−$8,000)×836]×912=$16,000×912=$12,000

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Most popular questions from this chapter

(Depreciation Computations—Four Methods) Robert Parish Corporation purchased a new machine for its assembly process on August 1, 2017. 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.

  1. Straight-line depreciation for 2017.
  2. Activity method for 2017, assuming that machine usage was 800 hours.
  3. Sum-of-the-years’-digits for 2018.
  4. Double-declining balance for 2018.

(Depreciation Computations—SYD, DDB—Partial Periods) Judds Company purchased a new plant asset on April 1, 2017, at a cost of \(711,000. It was estimated to have a service life of 20 years and a salvage value of \)60,000. Judds’ accounting period is the calendar year.

Instructions

  1. Compute the depreciation for this asset for 2017 and 2018 using the sum-of-the-years’-digits method.
  2. Compute the depreciation for this asset for 2017 and 2018 using the double-declining-balance method.

Brazil Group purchases a vehicle at a cost of \(50,000 on January 2, 2017. Individual components of the vehicle and useful lives are as follows.

Cost

Useful Lives

Tires

\) 6,000

2 years

Transmission

10,000

5 years

Trucks

34,000

10 years

Instructions

(Assume no residual (salvage) value.)

  1. Compute depreciation expense for 2017, assuming Brazil depreciates the vehicle as a single unit.
  2. Compute depreciation expense for 2017, assuming Brazil uses component depreciation.
  3. Why might a company want to use component depreciation to depreciate its assets?

Cominsky Company purchased a machine on July 1, 2018, for \(28,000. Cominsky paid \)200 in title fees and county property tax of \(125 on the machine. In addition, Cominsky paid \)500 shipping charges for delivery, and \(475 was paid to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 6 years with a salvage value of \)3,000. Determine the depreciation base of Cominsky’s new machine. Cominsky uses straightline depreciation.

Why might a company choose not to use revaluation accounting?
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