Question

Depreciation by Three Methods; Partial Years Perdue Company purchased equipment on April 1 for $101,250. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual value of $2,970. 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 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 A Year 2 A Year 3 A Year 4 A

Answer 1

a. Straight line Method Year Amount Year 1 $ 24,570 Year 2 S 32,760 Year 3 $ 32,760 Year 4 $ 8,190 Working Notes: Cost of Equipment =$101,250 Useful Life = 3 years Residual Value = $2.970 Depreciation = (Cost of Equipment - Residual Value) Useful Life = ($101,250-2.970)/3 = $32,760 Depreciation for Year 1 = $32,760*9/12 = $24,570 Depreciation for year 4 = $32,760*3/12 = $8.190

b Units-of-activity method Year Amount Year 1 $ 18,200 Year 2 $ 35,000 Year 3 $ 29,400 Year 4 $ 15,680 Working Notes: Cost of Equipment =$101,250 Residual Value = $2.970 Total Operating Hours = 7,020 Depreciation for Year 1 = ($101,250-$2.970)*(1,300/7,020) = $18.200 Depreciation for Year 2 =($101,250-$2.970)*(2,500/7,020) = $35,000 Depreciation for Year 3 =($101,250-S2,970) * (2.100/7,020) = $29,400 Depreciation for Year 4 = ($101,250-$2.970)*(1.120/7,020) = $15,680

c Double Decling balance Method Year Amount Year 1 $ 50.625 Year 2 $ 33,750 Year 3 S 11.250 Year 4 $ 2.655 Working Notes: Cost of Equipment =$101,250 Residual Value = $2,970 Useful life = 3 Years Depreciation rate = 1/3*200 =66.6667% Depreciation for Year 1 = $101,250*66.6667%*9/12 = $50.625 Depreciation for Year 2 = ($101.250-$50.625)*66.6667%= $33.750 Depreciation for Year 3 = ($101,250-$50,625-$33,750)*66.6667% = $11,250 Depreciation for Year 4 = ($101,250-$50,625-$33,750-$11,250*66.6667% = $938 or $2,655 which ever is higher