Question

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $62,370. The equipment was expected to have a useful life of three years, or 7,560 operating hours, and a residual value of $1,890. The equipment was used for 1,400 hours during Year 1, 2,600 hours in Year 2, 2,300 hours in Year 3, and 1,260 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.

a. Straight-line method

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

b. Units-of-output 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

STRIGHT LINE METHOD

Depreciation Year 1 = $ 15120

Depreciation Year 2 = $ 20160

Depreciation Year 3 = $ 20160

Depreciation Year 4 = $ 5040

Year	Opening Value	Depreciation	Book Value Year end
1	$ 62370	$ 15120	47250
2	47250	20160	27090
3	27090	20160	6930
4	6930	5040	1890

Year 1 = [(62370-1890)/3]*9/12 = 15120

Year 2 & 3 = (62370-1890)/3 = 20160

Year 4 =[ 62370 – 15120 – 20160 – 20160] – 1890 = 5040

UNITS OF PRODUCTION METHOD

Depreciation Year 1 = $ 11200

Depreciation Year 2 = $ 20800

Depreciation Year 3 = $ 18400

Depreciation Year 4 = $ 10800

Depreciation = [(Cost of Drills - Residual Value) / Estimated Total Production] x Actual Production

Depreciation Year 1 = $ 60480 x (1400 Hours / 7560 Hours)

                                    = $ 11200

Depreciation Year 2 = $ 60480 x (2600 Hours / 7560 Hours)

                                    = $ 20800

Depreciation Year 3 = $ 60480 x (2300 Hours / 7560 Hours)

                                    = $ 18400

Depreciation Year 4 = $ 60480 x (1260 Hours / 7560 Hours)

                                    = $ 10080

DOUBLE DECLINING BALANCE METHOD

Depreciation Year 1 = $ 31185

Depreciation Year 2 = $ 20790

Depreciation Year 3 = $ 6930

Depreciation Year 4 = $ 578

Year	Book Value Begining	Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining	Net Book Value End
1	62370	31185	31185
2	31185	20790	10395
3	10395	6930	3465
4	3465	578	2888

***Stright Line Depreciation Rate = 1/3 = 33.33%