PR 10-3A Depreciation by three methods; partial years

Perdue Company purchased equipment on April 1, 2012, 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 2012, 5,500 hours in 2013, 4,000 hours in 2014, and 1,000 hours in 2015.


Instructions

Determine the amount of depreciation expense for the years ended December 31, 2012, 2013, 2014, and 2015, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method.


Answer:


a. Straight-line method:
2012: [($270,000 – $9,000) ÷ 3] × 9/12…………………………………………… $65,250
2013: ($270,000 – $9,000) ÷ 3…………………………………………………… 87,000
2014: ($270,000 – $9,000) ÷ 3…………………………………………………… 87,000
2015: [($270,000 – $9,000) ÷ 3] × 3/12………………………………………… 21,750
b. Units-of-output method:
2012: 7,500 hours × $14.50*……………………………………………………… $108,750
2013: 5,500 hours × $14.50……………………………………………………… 79,750
2014: 4,000 hours × $14.50……………………………………………………… 58,000
2015: 1,000 hours × $14.50……………………………………………………… 14,500
* ($270,000 – $9,000) ÷ 18,000 hours = $14.50 per hour
c. Double-declining-balance method:
2012: $270,000 × 2/3 × 9/12…………...………………………………………… $135,000
2013: ($270,000 – $135,000) × 2/3……………………………………………… 90,000
2014: ($270,000 – $135,000 – $90,000) × 2/3…………………………………… 30,000
2015: ($270,000 – $135,000 – $90,000 – $30,000 – $9,000*)……………… 6,000
* Book value should not be reduced below $9,000, the residual value.