The Gruman Company

NPV & IRR and outcomes
June 29, 2019
Felicia & Fred
June 29, 2019

The Gruman Company purchased a machine for $ 220,000 on January 2, 2013. It made the following estimates:

Service life 5 years or 10,000 hours
Production 200,000 units
Residual value $ 20,000


In 2013, Gruman uses the machine for 1,800 hours and produces 44,000 units. In 2014, Gruman uses the machine for 1,500 hours and produces 35,000 units. If required, round your final answer to the nearest dollar.

Required:

  1. Compute the depreciation for 2013 and 2014 under each of the following methods:
    1. Straight-line method 
2013 $   
2014 $   
  • Sum-of-the-years’-digits method
2013 $   
2014 $   
  • Double-declining-balance method
2013 $   
2014 $   
  • Activity method based on hours worked
2013 $   
2014 $   
  • Activity method based on units of output
2013 $   
2014 $   
  • For each method, what is the book value of the machine at the end of 2013? At the end of 2014?
    • Straight-line method 
2013 $   
2014 $   
  • Sum-of-the-years’-digits method
2013 $   
2014 $   
  • Double-declining-balance method
2013 $   
2014 $   
  • Activity method based on hours worked
2013 $   
2014 $   
  • Activity method based on units of output
2013 $   
2014 $   
  • 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 the following under the straight-line, sum-of-the-years’-digits, and double-declining-balance depreciation methods?

Depreciation expense

  1. Straight-line method 
2013 $   
2014 $   
  • Sum-of-the-years’-digits method
2013 $   
2014 $   
  • Double-declining-balance method
2013 $   
2014 $   

Book value 

  • Straight-line method 
2013 $   
2014 $   
  • Sum-of-the-years’-digits method
2013 $   
2014 $   
  • Double-declining-balance method
2013 $   
2014 $   
 
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