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Depreciation Methods

Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the following estimates:

Service life	5 years or 10,000 hours
Production	180,000
Residual value	$18,000

In 2016, Gruman uses the machine for 1,700 hours and produces 45,000 units. In 2017, Gruman uses the machine for 1,400 hours and produces 30,000 units. If required, round your final answers to the nearest dollar.

Required: 1. Compute the depreciation for 2016 and 2017 under each of the following methods: a. Straight-line method 2016 $ 36,000 2017 $ 36,000 b. Sum-of-the-years'-digits method 2016 $ 60,000 2017 $ 48,000 c. Double-declining-balance method 2016 $ 79,200 2017 $ 47,520 d. Activity method based on hours worked 2016 $ 30,600 2017 $ 25,200 e. Activity method based on units of output 2016 $ 45,000 2017 $ 30,000 2. For each method, what is the book value of the machine at the end of 2016? At the end of 2017? a. Straight-line method 2016 $ 162,000 2017 $ 126,000 b. Sum-of-the-years'-digits method 2016 $ 138,000 2017 $ 90,000 c. Double-declining-balance method 2016 $ 118,800 2017 $ 71,280 d. Activity method based on hours worked 2016 $ 2017 $ e. Activity method based on units of output 2016 $ 2017 $ 3. If Gruman used a service life of 8 years or 15,000 hours and a residual value of $9,000, what would be the effect on the following under the straight-line, sum-of- the-years-digits, and double-declining-balance depreciation methods? Depreciation expense a. Straight-line method 2016 $ 23,625 2017 $ 23,625 b. Sum-of-the-years'-digits method 2016 $ 42,000 2017 $ 36,750 c. Double-declining-balance method 2016 $ 2017 $ Book value a. Straight-line method 2016 $ 2017 $ b. Sum-of-the-years'-digits method 2016 $ 2017 $ c. Double-declining-balance method 2016 $

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