Question

Perdue Company purchased equipment on April 1 for $86,670. The equipment was expected to have a useful life of three years, or 6,480 operating hours, and a residual value of $2,430. The equipment was used for 1,200 hours during Year 1, 2,300 hours in Year 2, 1,900 hours in Year 3, and 1,080 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. units-of-output method.

c. the double-dedining-balance method.

Answer 1

Answer:

purchase cost $86,670

useful life 3 years, 6,480 operating hours

residual value $2,430

a. the straight-line method

depreciation expense per year = ($86,670 - $2,430) / 3 = $28,080

• depreciation year 1 = $28,080 x 9/12 = $21,060
• depreciation year 2 = $28,080
• depreciation year 3 = $28,080
• depreciation year 4 = $28,080 x 3/12 = $7,020

b. units-of-output method.

depreciation per hour =  ($86,670 - $2,430) / 6,480 = $13

• depreciation year 1 = 1,200 x $13 = $15,600
• depreciation year 2 = 2,300 x $13 = $29,900
• depreciation year 3 = 1,900 x $13 = $24,700
• depreciation year 4 = 1,080 x $13 = $14,040

c. the double-declining-balance method.

• depreciation year 1 = 2 x 1/3 x $86,670 x 9/12 = $43,335
• depreciation year 2 = $14,445 + (2 x 1/3 x $28,890 x 9/12) = $28,090
• depreciation year 3 = $4,815 + (2 x 1/3 x $9,630 x 9/12) = $9,630
• depreciation year 4 = $1,605 + ($3,210 - $2,430) = $2,385