Razar Sharp Company purchased equipment on July 1, 2014, for $93,420. The equipm

Question

Razar Sharp Company purchased equipment on July 1, 2014, for $93,420. The equipment was expected to have a useful life of three years, or 7,560 operating hours, and a residual value of $2,700. The equipment was used for 1,400 hours during 2014, 2,600 hours in 2015, 2,300 hours in 2016, and 1,260 hours in 2017.

Required:

Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, 2016, and 2017, by (a) the straight-line method, (b) units-of-output method, and (c) the double-declining-balance method.



Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-output method

c. Double-declining-balance method

Explanation / Answer

A./ STRAIGHT LINE METHOD

PURCHASE PRICE OF EQUIPEMENT =$93420

LESS SAlVAGE VALUE =($2700)

DEPRICIABLE VALUE =$90720

DEPRICIATION PER YEAR= DEPRICIABLE VALUE / LIFE OF ASSET

=$90720 / 4YEARS

=$22680 PER YEAR

DEPRICIATION FOR YEAR 2014(JULY TO DEC I;E 6MONTHS) ($22680 / 2)=$11340

DEPRICIATION FOR YEAR 2015 =$22680

DEPRICIATION FOR YEAR2016 =$22680

DEPRICIATION FOR YEAR 2017(FOR 6MONTHS, BECAUSE REMAING LIFE IS 6MONTHS)=$11340

B./ UNITS OF OUTPUT METHOD-

DEPRICIABLE VALUE OF ASSET IS SAME AS ABOVE CALCULATED=$90720

DEPRICIATION FOR THE YEAR 2014 1400 / 7560 *90720 =$16800

DEPRICIATION FOR THE YEAR 2015 2600 / 7560 *90720 =$31200

DEPRICIATION FOR THE YEAR 2016 2300 / 7560 *90720 =$27600

DEPRICIATION FOR THE YEAR 2017 1260 / 7560 *90720 =$15120

C./DOUBLE DECLINING BALANCE METHOD-

AS THE LIFE OF THE ASSET IS 3 YEARS PERCENTAGE OF DEPRICIATION IN EACH YEAR UNDER STRAIGHT LINE METHOD IS 100/3= 33.33%

BUT IN CASE OF DOUBLE DECLINING METHOD OF DEPRICIATION THE PERCENTAGE OF DEPRICIATION WILL BE 33.33% * 2=66.67%

DEPRICIABLE VALUE WILL BE SAME AS CALCULATED ABOVE=$90720

YEAR BOOK VALUE AT BEGINING DEPRICIATION BOOK VALUE AT END

2014 $90720 $60483 $30237

2015 30237 20159 10568

2016 10568 7046 3522

2017 3522 2348 1174

DEPRICIATION= BOOK VALUE AT BEGINING * 66.67%

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