Equipment purchased at the beginning of the fiscal year for $455,000 is expected

Question

Equipment purchased at the beginning of the fiscal year for $455,000 is expected to have a useful life of 5 years, or 15,000 operating hours, and a residual value of $3,000. Compute the depreciation for the first and second years of use by each of the following methods:

(a)

straight-line

(b)

units-of-production (2,500 hours first year; 3,250 hours second year)

(c)

declining-balance at twice the straight-line rate

(Round the answer to the nearest dollar.)

First Year

              

(a)

straight-line

(b)

units-of-production (2,500 hours first year)

(c)

declining-balance at twice the straight-line rate

                              Second Year

(a)

straight-line

(b)

units-of-production (3,250 hours second year)

(c)

declining-balance at twice the straight-line rate

(a)

straight-line

(b)

units-of-production (2,500 hours first year; 3,250 hours second year)

(c)

declining-balance at twice the straight-line rate

Explanation / Answer

(a) Depreciation under SLM = 455,000 - 3,000 / 5 = $90,400

(b) Rate of depreciation under Units of production = 452,000 / 15,000 = $30 approx. This is multiplied by the units produced.

(c) Depreciation rate = 1/ useful life * 200 % = 1/ 5 * 200 % = 40%

First year = 40% of $455,000 = $182,000

Second year = 40% of $(455,000 - 182,000) = $109,200

METHOD OF DEPRECIATION FIRST YEAR SECOND YEAR a. Straight line $90,400 $90,400 b. Units of production 2,500 * 30 = $75,000 3,250 * 30 = $97,500 c. Double declining balance $182,000 $109,200

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