Question

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $270,000. The equipment was expected to have a useful life of three years or 18,000 operating hours, and a residual value of $9,000. The equipment was used for 7,500 hours during Year 1, 5,500 hours in Year 2, 4,000 hours in Year 3, and 1,000 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-activity method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the answer for each year to the nearest whole dollar.

a. Straight-line method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

b. Units-of-activity method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

c. Double-declining-balance Method

Year	Amount
Year 1	$
Year 2	$
Year 3	$
Year 4	$

Answer 1

Requirement a
Straight Line Method of Depreciation
	Cost	Depreciation Rate	Annual Depreciation Expense	Accumulated Depreciation	Book Value
Year 1	270,000	1/3	65,250	65,250	204,750
Year 2	270,000	1/3	87,000	152,250	117,750
Year 3	270,000	1/3	87,000	239,250	30,750
Year 4	270,000	1/3	21,750	261,000	9,000
			261,000
Year 1 Depreciation Expense = (270,000-9000)X1/3 X9/12 =65,250
Year 2 to 3 Annual Depreciation Expense = (270,000-9000)X1/3 =87000
Year 4 Depreciation Expense = (270,000-9000)X1/3 X3/12 =21,750
Requirement b
Units of Activity method of depreciation
	Cost	hours used	Depreciation Rate	Annual Depreciation Expense	Accumulated Depreciation	Book Value
Year 1	270,000	7,500	14.50 per Hour	108,750	108,750	161,250
Year 2	161,250	5,500	14.50 per Hour	79,750	188,500	81,500
Year 3	81,500	4,000	14.50 per Hour	58,000	246,500	23,500
Year 4	23,500	1,000	14.50 per Hour	14,500	261,000	9,000
		18,000		261,000
Depreciation per unit =( 270,000-9000)/18000 = 14.50 per hour
Requirement c
Double Decline Method of Depreciation
	Cost	Depreciation Rate	Annual Depreciation Expense	Accumulated Depreciation	Book Value
Year 1	270,000	2/3	135,000	135,000	135,000
Year 2	135,000	2/3	90,000	225,000	45,000
Year 3	45,000	2/3	30,000	255,000	15,000
Year 4	15,000	2/3	6,000	261,000	9,000
			261,000
Depreciation rate = 2 X Straight line Depreciation rate = 2/3
Year 1 Depreciation Expense = 270,000X2/3X9/12 =135000
Year 4 Depreciation Expense will subject to maximum allowable depreciation i.e, 261,000
Year 4 Depreciation allowable is $6,000 (15,000-9,000)