Question

Depreciation by Three Methods; Partial Years

Razar Sharp Company purchased equipment on July 1, 2014, 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 2014, 2,300 hours in 2015, 1,900 hours in 2016, and 1,080 hours in 2017.

Required:

Determine the amount of depreciation expense for the years ended December 31, 2014, 2015, 2016, and 2017, 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.

a. Straight-line method

Year	Amount
2014	$
2015	$
2016	$
2017	$

b. Units-of-output method

Year	Amount
2014	$
2015	$
2016	$
2017	$

c. Double-declining-balance method

Year	Amount
2014	$
2015	$
2016	$
2017	$

Answer 1

ANSWER :

a,

Straight - Line Method
Year	Amount
2014	$ 14040
2015	$ 28080
2016	$ 28080
2017	$ 14040

Working note - 1

Depreciation per year under SLM method = cost - salvage value / useful life

= $ 86670 - $ 2430/ 3

= $ 28080

Depreciation for year 2014 = $ 28080* 6/12 = $ 14040

Depreciation for year 2015 = $ 28080

Depreciation for year 2016 = $ 28080

Depreciation for year 2017 = $ 28080* 6/12 = $ 14040

b.

Units of output Method
Year	Amount
2014	$ 15600
2015	$ 29900
2016	$ 24700
2017	$ 14040

working note -2

Depreciation as per units of output method = Cost - salvage value / estimated operating hour

= $ 86670 - $ 2430 / 6480 hour

= $ 13 per hour

Depreciation for year 2014 = Hour used * Depreciation per hour

= 1200 hour * $ 13

= $ 15600

Depreciation for year 2015 = 2300 hour * $ 13

= $ 29900

Depreciation for year 2016 = 1900hour * $ 13

= $ 24700

Depreciation for year 2017 = 1080 hour * $ 13

= $ 14040

c.

Double -declining - Balance method
Year	Amount
2014	$ 28890
2015	$ 38520
2016	$ 12840
2017	$ 3990

Double decling depreciaton rate = 100% *2 / useful life

= 100 % *2/3

= 66.6667 %

Depreciation for year 2014 = $ 86670* 66.6667 % *6/12

= $ 28890

Carrying value for 2014 = $ 86670- $ 28890

= $ 57780

Depreciation for 2015 = $ 57780* 66.6667%

= $ 38520

Carrying value for 2015 = $ 57780 - $ 38520

= $ 19260

Depreciation for 2016 = $ 19260* 66.6667 %

= $ 12840

Carrying value for 2016 = $ 19260 - $ 12840

= $ 6420

Depreciation for year 2017

Book value should not be reduced below residual value ...ie $ 2430

so depreciation for year 2017 = Carrying value - residual value

= $ 6420 - $ 2430

= $ 3990