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 $86,670. The equipment was expected to have a useful life of three years, or 6,480 operating hours, and a residual value of $2,430. The equipment was used for 1,200 hours during Year 1, 2,300 hours in Year 2, 1,900 hours in Year 3, and 1,080 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-output method, and (c) the double-dedining-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 Year Year 1 Year 2 Amount 28,080 X 28,080 28,080 Year 4 b. Units-of-output method Year Amount € 15,600 Year 1 - Year 2 € 39,900 24,700 14.040 Year 3

Explanation / Answer

CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD Purchase Cost of Machine $    86,670.00 Less: Salvage Value $      2,430.00 Net Value for Depreciation $    84,240.00 Usefule life of the Assets 3 years Depreciation per year = Value for Depreciation / 3 years =        28,080.00 Answer = A) Depreciation as per SLM Year 1 is for 9 Months ($ 28,080 X 9/12)        21,060.00 Year 2        28,080.00 Year 3        28,080.00 Year 4           7,020.00 CALCULATION OF THE DEPRECIATION AS PER SUM OF DOUBLE DECLINE METHOD Purchase Cost of Machine $    86,670.00 Useful Life = 3 years Depreciation per year = $    28,890.00 (Purchase price / Useful life) Rate of Depreciation =              0.3333 OR 33.33% (Depreication / Purchase price ) Double decline deprection rate = 33.33% * 2 = 66.667% Purchase Value of the Machiene $    86,670.00 Depreciation for the year 1 @ 66.667% * 9/12 = 50% $    43,335.00 Closing balance for the year 1 $    43,335.00 Opening Balance for the year 2 $    43,335.00 Depreciation for the year 2 @ 66.667% $    28,890.00 Closing balance for the year 2        14,445.00 Opening Balance for the year 3 $    14,445.00 Depreciation for the year 3 @ 66.667% $      9,630.00 Closing balance for the year 3           4,815.00 Opening Balance for the year 4 $      4,815.00 Depreciation for the year 4 @ 66.667% $      3,210.00 Closing balance for the year 4           1,605.00 Answer = C) Depreciation as per Double decline Balance Method Year 1 $          43,335 Year 2 $          14,445 Year 3 $            4,815 Year 4 $            1,605

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