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In: Accounting

Perdue Company purchased equipment on April 1 for $61,560. The equipment was expected to have a...

Perdue Company purchased equipment on April 1 for $61,560. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual value of $1,890. The equipment was used for 1,300 hours during Year 1, 2,500 hours in Year 2, 2,100 hours in Year 3, and 1,120 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	$_______

Expert Solution

Answer a.

Cost of Equipment = $61,560
Salvage Value = $1,890
Useful Life = 3 years

Annual Depreciation = (Cost of Equipment - Salvage Value) / Useful Life
Annual Depreciation = ($61,560 - $1,890) / 3
Annual Depreciation = $19,890

Depreciation:
Year 1 = $19,890
Year 2 = $19,890
Year 3 = $19,890
Year 4 = $0

Answer b.

Cost of Equipment = $61,560
Salvage Value = $1,890
Useful Life = 7,020 hours

Annual Depreciation = (Cost of Equipment - Salvage Value) / Useful Life
Annual Depreciation = ($61,560 - $1,890) / 7,020
Annual Depreciation = $8.50 per operating hour

Depreciation:
Year 1 = $1,300*$8.50 = $11,050
Year 2 = $2,500*$8.50 = $21,250
Year 3 = $2,100*$8.50 = $17,850
Year 4 = $1,120*$8.50 = $9,520

Answer c.

Double declining Depreciation Rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1 / Useful Life
Straight Line Depreciation Rate = 1 / 3 = 33.33%

Double declining Depreciation Rate = 2 * 33.33% = 66.66%

Depreciation:
Year 1 = $61,560 * 66.66% = $41,036
Year 2 = ($61,560 - $41,036) * 66.66% = $13,681
Year 3 = ($61,560 - $41,036 - $13,681) * 66.66% = $4,562
Year 4 = ($61,560 - $41,036 - $13,681 - $4,562) * 66.66% = $1,521

ekkarill92 answered 1 year ago

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