Question

Depreciation by Three Methods; Partial Years Razar Sharp Company purchased equipment on July 1, 2014, for $58,050. The equipment was expected to have a useful life of three years, or 5,940 operating hours, and a residual value of $1,620. The equipment was used for 1,100 hours during 2014, 2,100 hours in 2015, 1,800 hours in 2016, and 940 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

Straight-line Method:

Cost of Equipment = $58,050
Residual Value = $1,620
Useful Life = 3 years

Annual Depreciation = (Cost of Equipment - Residual Value) / Useful Life
Annual Depreciation = ($58,050 - $1,620) / 3
Annual Depreciation = $18,810

Depreciation for 2014 = $18,810 * 6/12 = $9,405
Depreciation for 2015 = $18,810
Depreciation for 2016 = $18,810
Depreciation for 2017 = $18,810 * 6/12 = $9,405

Units-of-output Method:

Cost of Equipment = $58,050
Residual Value = $1,620
Expected Number of Operating Hours = 5,940

Depreciation per hour = (Cost of Equipment - Residual Value) / Expected Number of Operating Hours
Depreciation per hour = ($58,050 - $1,620) / 5,940
Depreciation per hour = $9.50

Depreciation for 2014 = $9.50 * 1,100 = $10,450
Depreciation for 2015 = $9.50 * 2,100 = $19,950
Depreciation for 2016 = $9.50 * 1,800 = $17,100
Depreciation for 2017 = $9.50 * 940 = $8,930

Double-declining Balance Method:

Straight-line Depreciation Rate = 1 / Useful life
Straight-line Depreciation Rate = 1 / 3
Straight-line Depreciation Rate = 0.3333

Double-declining Depreciation Rate = 2 * Straight-line Depreciation Rate
Double-declining Depreciation Rate = 2 * 0.3333
Double-declining Depreciation Rate = 0.6666

Depreciation for 2014 = $58,050 * 0.6666 * 6/12 = $19,348

Book Value at the end of 2014 = $58,050 - $19,348
Book Value at the end of 2014 = $38,702

Depreciation for 2015 = $38,702 * 0.6666 = $25,799

Book Value at the end of 2015 = $38,702 - $25,799
Book Value at the end of 2015 = $12,903

Depreciation for 2016 = $12,903 * 0.6666 = $8,601

Book Value at the end of 2016 = $12,903 - $8,601
Book Value at the end of 2016 = $4,302

Depreciation for 2017 = $4,302 - $1,620 = $2,682