Perdue Company purchased equipment on April 1 for $39,960. The equipment was exp

Question

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 $ 9,720 Year 2 $ Year 3 $ Year 4 $ b. Units-of-output method Year Amount Year 1 $ 7,200 Year 2 $ 13,500 Year 3 $ 11,700 Year 4 $ 6,480 c. Double-declining-balance method Year Amount Year 1 $ Year 2 $ Year 3 $ Year 4 $

Explanation / Answer

Requirement a: Straight line method: Cost 39960 Salvage value 1080 Useful life (years) 4 Depreciable value 38880 (Cost - salvage value) (39960-1080) Depreciation per annum 9720 (Depreciable value/useful life) (38880/4) Requirement b: Units of output method: Depreciation Depreciable value * corresponding hours/total hours Year Hours Weight Depreciation 1 800 0.1852 7200 2 1500 0.3472 13500 3 1300 0.3009 11700 4 720 0.1667 6480 4320 38880 Requirement c: Double Declining Balance method: Rate of depreciation 0.5 (2 * 1/useful life) (2* 1/4) Depreciation schedule: Year Beginning Book value Depreciation Accumulated Depreciation Ending Book Value 1 39960 19980 19980 19980 2 19980 7992 27972 11988 3 11988 4795 32767 7193 4 7193 2877 35644 4316

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