Depreciation by Three Methods; Partial Years Perdue Company purchased equipment

Question

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $270,000. The equipment was expected to have a useful life of three years or 18,000 operating hours, and a residual value of $9,000. The equipment was used for 7,500 hours during Year 1, 5,500 hours in Year 2, 4,000 hours in Year 3, and 1,000 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-activity method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-activity method

c. Double-declining-balance Method

Explanation / Answer

Requirement a Straight Line Method of Depreciation Cost Depreciation Rate Annual Depreciation Expense Accumulated Depreciation Book Value Year 1        270,000 1/3                     65,250              65,250                  204,750 Year 2        270,000 1/3                     87,000            152,250                  117,750 Year 3        270,000 1/3                     87,000            239,250                    30,750 Year 4        270,000 1/3                     21,750            261,000                       9,000                  261,000 Year 1 Depreciation Expense = (270,000-9000)X1/3 X9/12 =65,250 Year 2 to 3 Annual Depreciation Expense = (270,000-9000)X1/3 =87000 Year 4 Depreciation Expense = (270,000-9000)X1/3 X3/12 =21,750 Requirement b Units of Activity method of depreciation Cost hours used Depreciation Rate Annual Depreciation Expense Accumulated Depreciation Book Value Year 1        270,000                 7,500 14.50 per Hour            108,750                  108,750    161,250 Year 2        161,250                 5,500 14.50 per Hour              79,750                  188,500      81,500 Year 3           81,500                 4,000 14.50 per Hour              58,000                  246,500      23,500 Year 4           23,500                 1,000 14.50 per Hour              14,500                  261,000         9,000              18,000            261,000 Depreciation per unit =( 270,000-9000)/18000 = 14.50 per hour Requirement c Double Decline Method of Depreciation Cost Depreciation Rate Annual Depreciation Expense Accumulated Depreciation Book Value Year 1        270,000 2/3                  135,000            135,000                  135,000 Year 2        135,000 2/3                     90,000            225,000                    45,000 Year 3           45,000 2/3                     30,000            255,000                    15,000 Year 4           15,000 2/3                       6,000            261,000                       9,000                  261,000 Depreciation rate = 2 X Straight line Depreciation rate = 2/3 Year 1 Depreciation Expense = 270,000X2/3X9/12 =135000 Year 4 Depreciation Expense will subject to maximum allowable depreciation i.e, 261,000 Year 4 Depreciation allowable is $6,000 (15,000-9,000)

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