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 $93,420. The equipment was expected to have a useful life of three years, or 6,480 operating hours, and a residual value of $2,700. 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-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.

Explanation / Answer

Perdue Company Equipment Cost 93420 Residual Value 2700 Depreciable Value 90720 Equipment Life 3 Purchase Date Apr-01 A Striaght Line: Equipment Cost 93420 Residual Value 2700 Depreciable Value 90720 Equipment Life 3 Deprecition PA 30240 Usage in the Year 9 Months Depreciation for the Year 1 22680 (30240/12*9) Depreciation for the Year 2 30240 Depreciation for the Year 3 30240 Depreciation for the Year 4 7560 (30240/12*3) B Units of Output Method: Equipment Cost 93420 Residual Value 2700 Depreciable Value 90720 Total Usage Operating Hr 6480 Depreciation Rate 14.00 (90720/6480) Activity Depreciation Year 1 1200 16800 (Activity rate*14) Year 2 2300 32200 (Activity rate*14) Year 3 1900 26600 (Activity rate*14) Year 4 1080 15120 (Activity rate*14) C Double Declining Method: Equipment Life 3 Depreciation rate 33.33% Twice the Rate 66.67% Opening Cost Depreciation Closing Balance Year 1 93420 46710 46710 (9 Month Depreciation) Year 2 46710 31140 15570 Year 3 15570 10380 5190 Year 4 5190 865 4325 (3 Month Depreciation)

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