Perdue Company purchased equipment on April 1 for $270,000. The equipment was ex

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 amournt 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-decining- balance method. Note: FOR DECLINING BALANCE ONLY, round the answer for each year to the nearest whole dollar ear 1 Year 2 Year 3 Year 4 65,250 b. Units-of-output method 108,750 Year 2 79,750 58,000 14,500 Year 3 e. Double-declining-balance Method Year 1 Year 2 Year 3 Year 4 135,000

Explanation / Answer

Req A: Straight Line method Cost of Equipment      $ 270,000 Estimated Life               3 years Salvage value                $ 9,000 Annual Depreciation = Cost of equipment - Salvage value / Estimated life                                             ( 270,000 - 9000) / 3 = $ 87,000 Depreciation in first year for nine months = 87,000 *9/12 = $ 65,250 Depreciation to be charged each year : Year Depreciation amount 1 (for nine months) 65,250 2(Full year) 87,000 3(full year) 87,000 4(Three months) 21,750 (87,000*3/12) Req B: Units of output Method Cost of Equipment = $ 270,000 Salvage value                 $ 9,000 Expected hours of life   18,000 hours Depreciation per hour = Cost - Salvage / Expected life in hours = ( 270,000 -9000 ) / 18,000 = $ 14.50 per hour Depreciation to be charged each year Year 1 (Used 7,500 hours ) = 7500 hours@ 14.50 per hour = $108,750 Year 2(Used 5500 hours) = 5500 hours @ 14.50 per hour = $79,750 Year 3(Used 4000 hours) = 4000 hours @14.50 per hour = $58,000 Year 4(Used 1000 hours) = 1000 hours @ 14.50 per hour = $14,500 ReqC: Double declining Method: Annual derpeiation as per SLM = $ 87,000 (as computed above) SlM rate = Annual Depreciation / Cost-Salvage value *100 =   87,000 / 270,000-9,000 *100 =33.33% Year Net BoOk Value Depreciation Net Book Value at the end In beginning of Yr 2*SLM rate *NBV NBV 1 (for nine months) 270,000 135,000 135,000 2(Full year) 135,000 90,000 45,000 3(full year) 45,000 30,000 15,000 4(Three months) 15,000 5,000 10,000 (Balancing figure) (Salvage value at the end) Depreciation to be charged: Year Depreciation 1 $135,000 2 $90,000 3 $30,000 4 $5,000

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