Question

Perdue Company purchased equipment on April 1 for $61,290. The equipment was expected to have a...

Perdue Company purchased equipment on April 1 for $61,290. The equipment was expected to have a useful life of three years, or 5,400 operating hours, and a residual value of $1,890. The equipment was used for 1,000 hours during Year 1, 1,900 hours in Year 2, 1,600 hours in Year 3, and 900 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 $

Homework Answers

Answer #1

a.

Straight line: = ($61,290 - $1,890) / 3 = $19,800

Year Amount
Year 1 $19,800
Year 2 $19,800
Year 3 $19,800
Year 4 $0

b.

Units of Output: ($61,290 - $1,890) / 5,400 = $11

Year Hours Cost per unit Depreciation
Year 1 1000 $11.00 $11,000
Year 2 1900 $11.00 $20,900
Year 3 1600 $11.00 $17,600
Year 4 900 $11.00 $9,900
Year Amount
Year 1 $11,000
Year 2 $20,900
Year 3 $17,600
Year 4 $9,900

c.

Double Declining rate = 100 X 2 / 3 = 66.6667%

Year Balance at the beginning Rate Depreciation Book value at the end
Year 1 $61,290 66.6667% $40,860 $20,430
Year 2 $20,430 66.6667% $13,620 $6,810
Year 3 $6,810 66.6667% $4,540 $2,270
Year 4 $2,270 66.6667% $1,513 $757
Year Amount
Year 1 $40,860
Year 2 $13,620
Year 3 $4,540
Year 4 $1,513
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