Question

At the beginning of last​ year, Barrington Corporation purchased a piece of heavy equipment for $ 63,000. The equipment has a life of five years or 100,000 hours. The estimated residual value is $ 3,000. Bremond used the equipment for 19,000 hours last year and 23,000 hours this year. Depreciation expense for year two using​ double-declining-balance (DDB) and​ units-of-production (UOP) methods would be as​ follows:

Answer 1

The depreciation expense for year two using double-declining-balance (DDB) method is $1,260, while the depreciation expense using units-of-production (UOP) method is $12,600.

Step-by-step explanation:

Depreciation expense for year two using​ double-declining-balance (DDB) method can be calculated using the following formula:

DDB = (Book Value at the beginning of the year / Life of the asset) * 2

For the equipment, the book value at the beginning of year one would be $63,000, and the life of the asset is 5 years or 100,000 hours. Therefore, the depreciation expense for year two using DDB method would be:

DDB = ($63,000 / 100,000) * 2 = $1,260

For ​units-of-production (UOP) method, the depreciation expense is calculated based on the number of hours the equipment is used. In year one, the equipment was used for 19,000 hours, and in year two, it was used for 23,000 hours. Therefore, the depreciation expense for year two using UOP method would be:

UOP = (Cost of equipment - Residual value) * (Hours used in year two / Total estimated hours of life)

UOP = ($63,000 - $3,000) * (23,000 / 100,000) = $12,600.

Answer 2

double declining balance depreciation:

$63,000 / 5 years = $12,600 or 20% per year

depreciation expense year 1 = $63,000 x 40% = $25,200

$63,000 - $25,200 = $37,800

depreciation expense year 2 = $37,800 x 40% = $15,120

units of production depreciation:

($63,000 - $3,000) / 100,000 hours = $0.60 per hour

Depreciation expense year 1 = 19,000 hours x $0.60 per hour = $11,400

Depreciation expense year 2 = 23,000 hours x $0.60 per hour = $13,800