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 15,120 20,160 V 20,160 5,040 b. Units-of-output method Year Year 1 Year 2 Year 3 Year 4 Amount 11,200 V 21,000 18,200 V 10,080 V c. Double-declining-balance method Year Year 1 Year 2 Year 3 Year 4 Amount 31,285X 20,790 V 6,930 X 578 X

Explanation / Answer

Equipment cost     $ 62,370 Salvage value    $ 1890 Depreciable cost ( 62370-1890 ) = $ 60,480 Estimated life   = 3 years Annual depreciation ( 60480 /3 ) = $ 20,160 Depreciation under SLM Year 1(used for nine months) ( 20160 *9/12 ) 15120 Year 2(Full year) 20160 Year 3 (Full Year) 20160 Year 4(Three month(20160*3/12) 5040 Depreciable cost   $ 60480 Life in Operating hours   4320 hours Depreciation per operating hour ( 60480 /4320 ) = $ 14 per hour Depreciation under unt of output: YEAR OPERATING HOURS Rate per hour Depreciation Expense Year 1 800 14 11200 Year 2 1500 14 21000 Year3 1300 14 18200 Year 4 720 14 10080 Rate of depreciation under SLM (20160/60480) =33.33% rate under double decling =33.33*2 = 66.67% Depreciation under Double decling method: YEAR Book value rate of Dep Annual Depreciation Period for which Depreciation expense Book value Beginning Depreciation charged At end Year 1 62370 66.67% 41582 9 month 31187 31183 Year 2 31183 66.67% 20790 12 month 20790 10393 Year3 10393 66.67% 6929 12 month 6929 3464 Year 4 3464 66.67% 2309.4488 3 month 1574 1890 (B/F)

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