Question

Obj. 2 PR 9-3B Depreciation by three methods; partial years Layton Company purchased tool sharpening equipment on October 1 for $108,000. The eg ment was expected to have a useful life of three years or 12,000 operating hours, and a residual value of $7,200. The equipment was used for 1,350 hours during Year 1, 4,200 hours in Year 2 3,650 hours in Year 3, and 2,800 hours in Year 4. Instructions 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. EXCEL TEMPLATE

Answer 1

(A) Straight- line method-

Cost - $ 108,000

Salvage Value - $ 7,200

Use full Life - 3 years

(108,000-7,200)/3 = $33,600 for 3 months

33,600/12*3 = $ 8,400

Year 1 = $ 8,400

Year 2 = $ 33,600

Year 3 = $ 33,600

Year 4 = $ 25,200

B) Units of Activity Method

Year 1 = 1,350/12,000 = 11% = 100800 * 11% = $ 11,340

Year 2 = 4,200/12,000 = 35% = 100800 * 35% = $ 35,280

Year 3 = 3,650/12,000 = 30% = 100800 * 30% = $ 30,660

Year 4 = 2,800/12,000 = 23% = 100800 * 23% = $ 23,520

C) double - declining-balance method

As per SLM method its 100/3 = 33.33% as per double-declining-balance method its 66.67%

Year 1 = 108,000 * 66.67% = $ 72,000

For 3 months $72,000*3/12 = $ 18,000

Year 2 = $108,000-$18,000 = $ 90,000

$90,000*66.67% = $ 60,000

Year 3 = $108,000-$18,000-$60,000 = $ 30,000

$30,000*66.67% = $ 20,000

Year 4 = $108,000-$18,000-$60,000-$20,000 = $10,000

$10,000 - $7,200(Salvage value) = $2,800