Question

Perdue Company purchased equipment on April 1 for $270,000. The equipment was expected to have a...

Perdue Company purchased equipment on April 1 for $270,000. The equipment was expected to have a useful life of three years or 18,000 operating hours, and a residual value of $9,000. The equipment was used for 7,500 hours during Year 1, 5,500 hours in Year 2, 4,000 hours in Year 3, and 1,000 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 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-activity 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 $
Business   Accounting   
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Homework Answers

Answer #1

a)

Straight line method:

Year 1:

Cost of equipment = 270000

Useful life = 3 years

Residual value = 9000

Depreciation per year = (Cost of equipment - Residual value) / Useful life = (270000 - 9000)/3 = 87000

Year 2:

Depreciation per year = (Cost of equipment - Residual value) / Useful life = (270000 - 9000)/3 = 87000

Year 3:

Depreciation per year = (Cost of equipment - Residual value) / Useful life = (270000 - 9000)/3 = 87000

Year 4:

Depreciation per year = 0 (because asset has been fully depreciated)

b)

Units of activity methtod:

Total operating hours = 18000 hours

Year 1:

Depreciation = (7500/18000) *270000 = 112500

Year 2:

Depreciation = (5500/18000) *270000 = 82500

Year 3:

Depreciation = (4000/18000) *270000 = 60000

Year 4:

Depreciation = (1000/18000) *270000 = 15000

c)

Double declining balance method:

Percentage of depreciation = 90000/270000 *100 *2 = 66.66%

Year 1:

Depreciation = 270000*66.66% = 179982

Net book value = 270000 - 179982 = 90018

Year 2:

Depreciation = 90018*66.66% = 60006

Net book value = 90018 - 60006 = 30012

Year 3:

Depreciation = 30012*66.66% = 20006

Net book value = 30012 - 20006 = 10006

Year 4:

Depreciation = 10006

Net book value = NIL

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