At the beginning of last year, Bratworth Corporation purchased a piece of heavy

Question

At the beginning of last year, Bratworth Corporation purchased a piece of heavy equipment for $59,000. The equipment has a life of five years or 100,000 hours. The estimated residual value is $9,000. Bremond used the equipment for 20,000 hours last year and 26,000 hours this year. Depreciation expense for year two using double-declining-balance (DDB) and units-of-production (UOP) methods would be as follows (Carry all rates to two decimal places, .xX) DDB UOP OA $12,000 $13,000 OB. $12,000 $15,340 OC. $14,160 $15,340 OD. $14,160 $13,000

Explanation / Answer

Double - Declining Balance method:

Purchase price of equipment = 59000

Life of equipment = 5 years

Estimated residual value = 9000

Straight line depreciation rate = 100/5 = 20%

Double - Declining Balance method rate = 20%*2 = 40%

Depreciation expense for Year 1 = Purchase price of equipment*Double - Declining Balance method rate = 59000*40% = 23600

Net Book value at year end = 59000 - 23600 = 35400

Depreciation expense for Year 2 = Purchase price of equipment*Double - Declining Balance method rate = 35400*40% = 14160

Units-of-production method:

Purchase price of equipment = 59000

Residual value = 9000

Life of equipment = 100000 hours

Equipment used in Year 2 = 26000 hours

Depreciation expense for Year 2 =

(Purchase price of equipment - Residual value)*(Equipment used in Year 2/Life of equipment)

(59000 - 9000)*(26000/100000) = 50000*(26000/100000)

= 50000*0.26= 13000

Answer is D.$14,160 $13000

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