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 $33,750. The equipment was expected to have a useful life of three years, or 5,940 operating hours, and a residual value of $1,080. The equipment was used for 1,100 hours during Year 1, 2,100 hours in Year 2, 1,800 hours in Year 3, and 940 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

1. straight line method = (cost - scrap) / Life = (33750 - 1080) / 3 Years = 10,890 per year

For year - 1 ......... we have nine months of working so depreciation = 10890 * 9 / 12 = 8167.5

For year - 4 ........we have 3 months of working life so depreciation = 10890 * 3/12 = 2722.5

b. Units of output method

Here we calculate depreciation per hour of machine use = (33750 - 1080) / 5940 hours = 5.50 per hour

Now multiply with working hours of each year we get the depreciation of each year.

c. Double declining balance method

Here, we calculate the depreciation rate = 2 * 1/ life * 100 = 2 * 1/3 * 100 = 66.6667 %

For year - 1 Depreciation = 33750* 66.6667% * 9 / 12 = 16875

Asset value Year - 2 = 33750 - 16875 = 16875 ..........and depreciation for year - 2 = 16875 * 66.6667% = 11250

Year Depreciation 1 8167.5 2 10890 3 10890 4 2722.5

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