Question

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $62,640. The equipment was expected to have a useful life of three years, or 4,860 operating hours, and a residual value of $1,890. The equipment was used for 900 hours during Year 1, 1,700 hours in Year 2, 1,500 hours in Year 3, and 760 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) the units-of-activity 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-activity method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

c. Double-declining-balance method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

-----------------------

The following were selected from among the transactions completed by Babcock Company during November of the current year. Babcock uses the net method under a perpetual inventory system.

Nov.	3	Purchased merchandise on account from Moonlight Co., list price $89,000, trade discount 30%, terms FOB destination, 2/10, n/30.
	4	Sold merchandise for cash, $38,210. The cost of the goods sold was $20,810.
	5	Purchased merchandise on account from Papoose Creek Co., $51,550, terms FOB shipping point, 2/10, n/30, with prepaid freight of $730 added to the invoice.
	6	Returned $14,000 ($20,000 list price less trade discount of 30%) of merchandise purchased on November 3 from Moonlight Co.
	8	Sold merchandise on account to Quinn Co., $15,010 with terms n/15. The cost of the goods sold was $10,190.
	13	Paid Moonlight Co. on account for purchase of November 3, less return of November 6.
	14	Sold merchandise on VISA, $231,570. The cost of the goods sold was $142,060.
	15	Paid Papoose Creek Co. on account for purchase of November 5.
	23	Received cash on account from sale of November 8 to Quinn Co.
	24	Sold merchandise on account to Rabel Co., $54,800, terms 1/10, n/30. The cost of the goods sold was $33,850.
	28	Paid VISA service fee of $3,580.
	30	Paid Quinn Co. a cash refund of $6,420 for returned merchandise from sale of November 8. The cost of the returned merchandise was $3,140.

Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Perdue Company
Straight line method
Annual depreciation	(Cost-Residual Value)/Useful Life
	=(62,640-1,890)/3
	20,250
						Calculation
Year	Cost	Depreciation expense	Accumulated Depreciation	Book value		Depreciation expense	Acc Dep	Book value
Year 1	62,640	15,188	15,188	47,453		=20,250*9/12		=62,640-15,188
Year 2	62,640	20,250	35,438	27,203			=15,188+20,250	=62,640-35,438
Year 3	62,640	20,250	55,688	6,953			=35,438+20,250	=62,640-55,688
Year 4	62,640	5,063	60,750	1,890		=20,250*3/12		=62,640-60,750
				Cost less Accumulated Depreciation
Units of activity method
Dep per unit of activity	(Cost-Residual Value)/Units of Activity
	=(62,640-1,890)/4,860
	12.50
Year	Cost	Depreciation expense	Accumulated Depreciation	Book value		Depreciation expense
Year 1	62,640	11,250	11,250	51,390		=900*12.50
Year 2	62,640	21,250	32,500	30,140		=1,700*12.50
Year 3	62,640	18,750	51,250	11,390		=1,500*12.50
Year 4	62,640	9,500	60,750	1,890		=760*12.50
Double declining balance method
Double declining rate	100%/Useful Life*2
	=100%/3*2
	66.6667%
Year	Beg. book value	Depreciation expense	Accumulated Depreciation	Book value		Depreciation expense
Year 1	62,640	31,320	31,320	31,320		=62,640*66.6667%*9/12
Year 2	31,320	20,880	52,200	10,440		=31,320*66.6667%
Year 3	10,440	6,960	59,160	3,480		=10,440*66.6667%
Year 4	3,480	1,590	60,750	1,890		=3,480-1,890
		Last year dep of 1,590 is remaining figure to keep year end book value at residual value of 1,890

Babcock Company
Journal entries
Date	Account	Debit	Credit	Calculation
3-Nov	Merchandise Inventory	62,300		=89,000*(1-30%)
	Accounts Payable-Moonlight Co.		62,300
4-Nov	Cash	38,210
	Sales		38,210
	Cost of goods sold	20,810
	Merchandise Inventory		20,810
5-Nov	Merchandise Inventory	52,280		=51,550+730
	Accounts Payable-Papoose Creek		52,280
6-Nov	Accounts Payable-Moonlight Co.	14,000
	Merchandise Inventory		14,000
8-Nov	Accounts Receivable-Quinn Co.	15,010
	Sales		15,010
	Cost of goods sold	10,190
	Merchandise Inventory		10,190
13-Nov	Accounts Payable-Moonlight Co.	48,300		=62,300-14,000
	Cash		47,334
	Merchandise Inventory		966	=48,300*2%
14-Nov	Cash	231,570
	Sales		231,570
	Cost of goods sold	142,060
	Merchandise Inventory		142,060
15-Nov	Accounts Payable-Papoose Creek	52,280
	Cash		51,249
	Merchandise Inventory		1,031	=51,550*2%
23-Nov	Cash	15,010
	Accounts Receivable-Quinn Co.		15,010
24-Nov	Accounts Receivable-Rabel Co.	54,800
	Sales		54,800
	Cost of goods sold	33,850
	Merchandise Inventory		33,850
28-Nov	VISA service fees	3,580
	Cash		3,580
30-Nov	Sales returns and allowances	6,420
	Cash		6,420
	Merchandise Inventory	3,140
	Cost of goods sold		3,140
Note : 15th Nov entry - Cash discount is on purchase of $51,550 and not on freight of $730