Depreciation by Three Methods; Partial Years Perdue Company purchased equipment
ID: 2581543 • Letter: D
Question
Depreciation by Three Methods; Partial Years
Perdue Company purchased equipment on April 1 for $48,870. The equipment was expected to have a useful life of three years, or 4,320 operating hours, and a residual value of $1,350. 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
b. Units-of-output method
c. Double-declining-balance method
Feedback
Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation.
Annual units-of-output depreciation allocates the cost of the asset equally over the units produced (hours).
The double-declining rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation.
Compare the total depreciation for all methods over the time period. Recall that straight-line depreciation allocates the depreciable cost of the asset equally over the period of use, while double-declining method is an accelerated method.
Learning Objective 2.
Year Amount Year 1 $ Year 2 $ Year 3 $ Year 4 $Explanation / Answer
Answer:- 1)-Declining balance depreciation is calculated using the following formula:
Depreciation = Depreciation Rate * Book Value of Asset
Depreciation rate is given by the following formula:
Depreciation Rate = Accelerator *Straight Line Rate
Straight-line Depreciation Rate = 1/4 = 0.25 = 25%
Declining Balance Rate = 2*25% = 50%
2)- Straight line Method = Cost of asset- Salvage value of asset/No. of useful life (years)
=$48870-$1350/4=$47520/4 = $11880
3)- Units of output method=No.of operating hours each year/total operating hours*(Cost – Salvage value)
Depreciation:-
Year 1 =800 hours/4320 hours*($48870-$1350) = $8800
Year 2=1500 hours/4320 hours*$47520 = $16500
Year 3=1300 hours/4320 hours*$47520=$14300
Year 4=720 hours /4320 hours*$47520 = $7920
Depreciation = Depreciation Rate * Book Value of Asset
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