Jensen Company purchased a new machine on January 1, 2018, at a cost of $104,000. The company estimated that the machine has a salvage value of $8,000. The machine is expected to be used for 80,000 working hours during its 8-year life. Compute depreciation using the Double-declining method for 2018:
Straight-line for 2018 and 2019, assuming a December 31 year-end.
unit of activity
depriciation

Results are below.

Explanation:

Giving the following information:

Purchase price= $80,000

Salvage value= $8,000

Useful life= 8 years

To calculate the annual depreciation under the double-declining balance method, we need to use the following formula:

Annual depreciation= 2*[(book value)/estimated life (years)]

2018:

Annual depreciation= 2*[(80,000 - 8,000) / 8]

Annual depreciation= $18,000

Now, the straight-line method:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (80,000 - 72,000) / 8

Annual depreciation= $9,000

It remains constant during useful life.

Finally, the units-of-activity method (suppose 15,000 hours):

Annual depreciation= [(original cost - salvage value)/useful life of production in hours]*hours operated

Annual depreciation= [(80,000 - 8,000) / 80,000]*15,000

Annual depreciation= $13,500

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