Depreciation by Three Methods; Partial Years Perdue Company purchased equipment
ID: 2553313 • Letter: D
Question
Depreciation by Three Methods; Partial Years
Perdue Company purchased equipment on April 1 for $62,370. The equipment was expected to have a useful life of three years, or 7,560 operating hours, and a residual value of $1,890. The equipment was used for 1,400 hours during Year 1, 2,600 hours in Year 2, 2,300 hours in Year 3, and 1,260 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-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
Year Amount Year 1 $ Year 2 $ Year 3 $ Year 4 $Explanation / Answer
STRIGHT LINE METHOD
Depreciation Year 1 = $ 15120
Depreciation Year 2 = $ 20160
Depreciation Year 3 = $ 20160
Depreciation Year 4 = $ 5040
Year
Opening Value
Depreciation
Book Value
Year end
1
$ 62370
$ 15120
47250
2
47250
20160
27090
3
27090
20160
6930
4
6930
5040
1890
Year 1 = [(62370-1890)/3]*9/12 = 15120
Year 2 & 3 = (62370-1890)/3 = 20160
Year 4 =[ 62370 – 15120 – 20160 – 20160] – 1890 = 5040
UNITS OF PRODUCTION METHOD
Depreciation Year 1 = $ 11200
Depreciation Year 2 = $ 20800
Depreciation Year 3 = $ 18400
Depreciation Year 4 = $ 10800
Depreciation = [(Cost of Drills - Residual Value) / Estimated Total Production] x Actual Production
Depreciation Year 1 = $ 60480 x (1400 Hours / 7560 Hours)
= $ 11200
Depreciation Year 2 = $ 60480 x (2600 Hours / 7560 Hours)
= $ 20800
Depreciation Year 3 = $ 60480 x (2300 Hours / 7560 Hours)
= $ 18400
Depreciation Year 4 = $ 60480 x (1260 Hours / 7560 Hours)
= $ 10080
DOUBLE DECLINING BALANCE METHOD
Depreciation Year 1 = $ 31185
Depreciation Year 2 = $ 20790
Depreciation Year 3 = $ 6930
Depreciation Year 4 = $ 578
Year
Book Value Begining
Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining
Net Book Value End
1
62370
31185
31185
2
31185
20790
10395
3
10395
6930
3465
4
3465
578
2888
***Stright Line Depreciation Rate = 1/3 = 33.33%
Year
Opening Value
Depreciation
Book Value
Year end
1
$ 62370
$ 15120
47250
2
47250
20160
27090
3
27090
20160
6930
4
6930
5040
1890
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