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.

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Asked Dec 2, 2019
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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.

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Expert Answer

Step 1

Depreciation is the loss in the value of the asset caused due to its usage, wear and tear.

There are different methods available for computation of depreciation like, Straight line method, sum of digits, units of activity, double declining method.

Depreciation under straight-line depreciation

 Yearly Depreciation= (Cost of the asset – salvage value) ÷ Estimated Useful life of the asset

Depreciation under Units of activity:

Depreciation Rate            = (Cost of the asset – salvage value) ÷ Estimated Activity Capacity

Depreciation under Double-Declining balance method

Depreciation rate = (1÷ Useful Life of the asset ) * 2

Step 2

Depreciation under Straight Line Method

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Computation of Depreciation Particulars Cost of Equipment Less: Residual Value Amount 270000 9000 Balance Estimated Useful Life of Equipment Yearly Depreciation 261000 3 87000

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Step 3

Depreciation under Units ...

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A Computation of Depreciation Amount 270000 26 27 Particulars 28 Cost of Equipment 29 Less: Residual Value 9000 -B28+B29 31 Estimated Activity Capacity 18000 32 Depreciation rate per hour-B30/B31 30 Balance 7500 33 Hours Used in Year 1 34 Depreciation B33 B32 35 Hours used in year 2 5500 36 Depreciation 37 Hours used in year 3 38 Depreciation 39 Hours used in year 4 40 Depreciation -B35 B32 4000 B37 B32 1000 B39 B32 Computation of Depreciation Amount 270000 26 27 Particulars 28 Cost of Equipment 29 Less: Residual Value -9000 30 Balance 261000 31 Estimated Activity Capacity 18000 14.S 32 Depreciation rate per hour 7500 33 Hours Used in Year 1 108750 34 Depreciation 35 Hours used in year 2 36 Depreciation 5500 79750 37 Hours used in year 3 38 Depreciation 39 Hours used in year 4 4000 58000 1000 40 Depreciation 14500

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