Question

Equipment purchased at the beginning of the fiscal year for $720,000 is expected to have a useful life of 10 years, or 28,000 operating hours, and a residual value of $10,000. Compute the depreciation for the first and second years of use by each of the following methods: (12 points)

(a)	straight-line
(b)	units-of-production (2,200 hours first year; 5,000 hours second year)
(c)	double declining balance

(Round the answer to the nearest dollar.)

Answer 1

a Straight-line:
First year	71000	=(720000-10000)/10
Second year	71000	=(720000-10000)/10
b Units-of-production:
First year	55786	=(720000-10000)/28000*2200
Second year	126786	=(720000-10000)/28000*5000
c Double declining balance:
Double declining balance rate	20%	=2*(1/10)
First year	144000	=720000*20%
Second year	115200	=(720000-144000)*20%
Note: For units of production, depreciation rate have not been rounded off