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 $39,960. The equipment was expected to have a useful life of three years, or 4,320 operating hours, and a residual value of $1,080. 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 Amount Year 1 $ Year 2 $ Year 3 $ Year 4 $ b. Units-of-output method Year Amount Year 1 $ 0 Year 2 $ Year 3 $ Year 4 $ c. Double-declining-balance method 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*($39960-$1080) = $7200

Year 2=1500 hours/4320 hours*$38880 = $13500

Year 3=1300 hours/4320 hours*$38880=$11700

Year 4=720 hours /4320 hours*$38880 = $6480

Depreciation = Depreciation Rate * Book Value of Asset

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