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 $62,370. The equipment was expected to have a useful life of three years, or 4,320 operating hours, and a residual value of $1,890. The equipment was used for 800 hours during Year 1, 1,500 hours in Year 2, 1,300 hours in Year 3, and 720 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 Year Year 1 Year 2 Year 3 Year 4 Amount b. Units-of-output method Year Year 1 Year 2 Year 3 Year 4 Amount c. Double-declining-balance method Year Year 1 Year 2 Year 3 Year 4 Amount

Explanation / Answer

(a) Straight- line method Year Amount Year 1 15120 Year 2 20160 Year 3 20160 Year 4 20160 * Calculation of depreciation by straight-line method Depreciation = (Cost of equipment - residule value) / useful life ( 62370 - 1890)/3 20160 *Year 1 (April 1 to December 31) = 20160*9/12 (b) Units-of-output method Year Amount Year 1 11200 Year 2 21000 Year 3 18200 Year 4 10080 * Calculation of depreciation by unit-of-output method Depreciation = Hours used* (Cost of equipment - residule value) / useful hours Year 1 800*(62370-1890)/4320 11200 Year 2 1500*(62370-1890)/4320 21000 Year 3 1300*(62370-1890)/4320 18200 Year 4 720*(62370-1890)/4320 10080 (c) Double declining balance method Year Amount Year 1 30240.0151 Year 2 40320.0202 Year 3 40320.0202 Year 4 40320.0202 * Calculation of depreciation by Double-declining- balance method (Cost of equipment- Residule value)* 66.6667% Year 1 (April 1 to Dec 31) : (62370-1890) * 66.6667% *9/12 Year 2 (Jan 1 to Dec 31) : (62370-1890) * 66.6667% Year 3 (Jan 1 to Dec 31) : (62370-1890) * 66.6667% Year 4 (Jan 1 to Dec 31) : (62370-1890) * 66.6667% Depreciation rate under double declining balance menthod : Depreciation rate of straight line method * 2 33.3333 * 2 66.6667 Calculation of depreciation rate = 100/life of assets 100/3 33.3333

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