Perdue Company purchased equipment on April 1 for $270,000. The equipment was ex
ID: 2536656 • Letter: P
Question
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
Year Amount Year 1 $ Year 2 $ Year 3 $ Year 4 $Explanation / Answer
a)
Straight line method:
Year 1:
Cost of equipment = 270000
Useful life = 3 years
Residual value = 9000
Depreciation per year = (Cost of equipment - Residual value) / Useful life = (270000 - 9000)/3 = 87000
Year 2:
Depreciation per year = (Cost of equipment - Residual value) / Useful life = (270000 - 9000)/3 = 87000
Year 3:
Depreciation per year = (Cost of equipment - Residual value) / Useful life = (270000 - 9000)/3 = 87000
Year 4:
Depreciation per year = 0 (because asset has been fully depreciated)
b)
Units of activity methtod:
Total operating hours = 18000 hours
Year 1:
Depreciation = (7500/18000) *270000 = 112500
Year 2:
Depreciation = (5500/18000) *270000 = 82500
Year 3:
Depreciation = (4000/18000) *270000 = 60000
Year 4:
Depreciation = (1000/18000) *270000 = 15000
c)
Double declining balance method:
Percentage of depreciation = 90000/270000 *100 *2 = 66.66%
Year 1:
Depreciation = 270000*66.66% = 179982
Net book value = 270000 - 179982 = 90018
Year 2:
Depreciation = 90018*66.66% = 60006
Net book value = 90018 - 60006 = 30012
Year 3:
Depreciation = 30012*66.66% = 20006
Net book value = 30012 - 20006 = 10006
Year 4:
Depreciation = 10006
Net book value = NIL
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