Question

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $65,070. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual valueof $1,890. 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 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, 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.

Answer 1

• All working forms part of the answer
• “Depreciation Expense” column is the ANSWER column, rest are for working.
• Straight Line Depreciation

A	Cost	$            65,070.00
B	Residual Value	$              1,890.00
C=A - B	Depreciable base	$            63,180.00
D	Life [in years]	3
E=C/D	Annual SLM depreciation	$            21,060.00

Year	Book Value	Depreciation expense
1	$       65,070.00	$    15,795 [       21,060 x 9/12]
2	$       44,010.00	$            21,060.00
3	$       22,950.00	$            21,060.00
4	$          1,890.00	$            5,265 [21060 x 3/12]

• Units of Output Method

A	Cost	$            65,070.00
B	Residual Value	$              1,890.00
C=A - B	Depreciable base	$            63,180.00
D	Usage	7,020 operating hours
E	Depreciation expense	$                       9.00 per operating hour

Year	Book Value (A)	Usage (B)	Depreciation expense (A x B)
1	$       65,070.00	1,300	$         11,700.00
2	$       53,370.00	2,500	$         22,500.00
3	$       30,870.00	2,100	$         18,900.00
4	$       11,970.00	1,120	$         10,080.00

• Double Declining balance method

A	Cost	$            65,070.00
B	Residual Value	$              1,890.00
C=A - B	Depreciable base	$            63,180.00
D	Life [in years]	3
E=C/D	Annual SLM depreciation	$            21,060.00
F=E/C	SLM Rate	33.33%
G=F x 2	DDB Rate	66.67%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value
1	$       65,070.00	66.67%	$         32,537 [43382 x 9/12]	$             32,533
2	$       32533	66.67%	$         21690	$                10483
3	$          10843	66.67%	$            7229	$                3614
4	$          3614		$            1724	$                   1890