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

(a) Straight Line Method

Depreciation Year 1 = [ ($270,000 – 9,000) / 3 ] x 9/12 = $65,250

Depreciation Year 2= [ ($270,000 – 9,000) / 3 ] = $87,000

Depreciation Year 3= [ ($270,000 – 9,000) / 3 ]= $87,000

Depreciation Year 4= $261,000 - $65250 - $87000 - $87000 = $21,750

(b) Units of Activity Method

Depreciation Year 1 = [($270,000 – 9,000) / 18000 ] x 7500 = $108750

Depreciation Year 2= [($270,000 – 9,000) / 18000 ] x 5500 = $79750

Depreciation Year 3= [($270,000 – 9,000)/ 18000 ] x 4000 = $58000

Depreciation Year 4= [($270,000 – 9,000)/ 18000 ] x 1000   = $14500

(c) Double Declining Balance Method

Depreciation Year 1 = $270000 x 0.6666 x 9/12 = $135000

Depreciation Year 2= ($270000 - 135000) x 0.6666 = $90000

Depreciation Year 3= ($270000 – 135000 – 90000) x 0.6666 = $30000

Depreciation Year 4= ($270000-135000-90000-30000-9000) = $6000

****Straight line depreciation rate = 2 x 1/3 = 0.6666