Perdue company purchased equipment on April 1st for $79650. the equipment was ex
ID: 2584776 • Letter: P
Question
Perdue company purchased equipment on April 1st for $79650. the equipment was expected to have a useful life of 3 years, or 7,020 operating hours, and a residual value of $2,430. the equipment was used for 1,300 hours during Year 1, 2,500 hours in Year 2, 2,100 hours in Year 3, and 1,120 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 the straight-line method. units of output method, and the double declining balance method.
Note: for declining balance only around the multiplier to four decimal places. Dan round the answer for each year to the nearest whole dollar.
Explanation / Answer
1) Straight-line method Depreciation = Cost - Residual Value / Useful life =($79650- $2,430)/4 =$25,740 Year Depreciation -Straight-line method 1 $ 25,740 2 $ 25,740 3 $ 25,740 4 Nil (Since, equipment useful life is only three years there will no depreciation after three years) 2) Units of output method of depreciation = (Total cost - Residual value)×Hours worked in a year ÷ Total useful working hours Total hours worked = 1300+2500+2100+1120 =7020 Year Depreciation -Straight-line method Amount$ 1 =($79650- $2,430)/7020*1300= $ 14,300 2 =($79650- $2,430)/7020*2500= $ 27,500 3 =($79650- $2,430)/7020*2100= $ 23,100 4 =($79650- $2,430)/7020*1120= $ 12,320 3) Rate of depreciation under straight line = 1/3 Rate of depreciation under double declining method = 2*Rate of depreciation under straight line = 2×1/3 = 2/3 (a) b =a*2/3 c= a-b Year Opening balance Depreciation Closing balance 1 $79,650 $53,100 $26,550 2 $26,550 $17,700 $8,850 3 $8,850 $5,900 $2,950 4 $2,950 $1,967 $983
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