Question

erdue Company purchased equipment on April 1 for $36,180. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual value of $1,080. 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-activity 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

Answer 1

Perdue Company

Depreciation expense for the years ended December 31:

Year 1 Year 2 Year 3 Year 4

a) Straight-line method $11,700 $11,700 $11,700 $0

b) Units-of-activity method $6,500 $12,500 $10,500 $5,600

($5 x 1,300) ($5 x 2,500) ($5 x 2,100) ($5 x 1,120)

c) Double-declining method $24,121 $8,040 $2,939 $0

1st year = $36,180 * 0.6667 = $24,121

2nd year = $12,059 * 0.6667 = $8,040

3rd year = ($36,180 - 24,151 - 8,040 - 1,080) = $2,939

Step-by-step explanation:

a) Data and Calculations:

April 1 Purchased Equipment = $36,180

Useful life = 3 years or 7,020 operating hours

Residual value = $1,080

Depreciable amount = $35,100

Under Straight-line method, depreciation rate per annum = $11,700 ($35,100/3).

Under the units-of-activity method, the depreciation rate per hour = $5 ($35,100/7,020).

Under the double-declining method, the depreciation percent = 0.6667 (100/3) * 2.

The double-declining method does not consider the residual value at the beginning, but at the end of the computation.