Gruman Company purchased a machine for $ 220,000 on January 2, 2016. It made the following estimates: Service life 5 years or 10,000 hours Production 200,000 units Residual value $ 20,000 In 2016, Gruman uses the machine for 1,800 hours and produces 44,000 units. In 2017, Gruman uses the machine for 1,500 hours and produces 35,000 units.
Required:
1. Compute the depreciation expense for 2016 and 2017 under each of the following methods:
a. straight- line
b. sum- of- the- years’- digits ( round to the nearest dollar)
c. double- declining- balance
d. activity method based on hours worked e. activity method based on units of output
2. For each method, what is the book value of the machine at the end of 2016? At the end of 2017?
3. Next Level If Gruman used a service life of 8 years or 15,000 hours and a residual value of $ 10,000, what would be the effect on
(a) depreciation expense and
(b) book value under the straight- line, sum- of- the- years’- digits, and double- declining- balance depreciation methods?