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

Layton Company purchased tool sharpening equipment on October 1, 2012, for $108,000. The equipment was expected to have a useful life of three years, or 12,000 operating hours, and a residual value of $7,200. The equipment was used for 1,350 hours during 2012, 4,200 hours in 2013, 3,650 hours in 2014, and 2,800 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: [($108,000 – $7,200) ÷ 3] × 3/12…………………………………………… $ 8,400
2013: [($108,000 – $7,200) ÷ 3]………………………………………………… 33,600
2014: [($108,000 – $7,200) ÷ 3]…………………………………………………… 33,600
2015: [($108,000 – $7,200) ÷ 3] × 9/12………………………………………… 25,200
b. Units-of-output method:
2012: 1,350 hours × $8.40*……………………………………………………… $11,340
2013: 4,200 hours × $8.40………………………………………………………… 35,280
2014: 3,650 hours × $8.40……………………………………………………… 30,660
2015: 2,800 hours × $8.40………………………………………………………… 23,520
* ($108,000 – $7,200) ÷ 12,000 hours = $8.40 per hour
c. Double-declining-balance method:
2012: $108,000 × 2/3 × 3/12…………...………………………………………… $18,000
2013: ($108,000 – $18,000) × 2/3………………………………………………… 60,000
2014: ($108,000 – $18,000 – $60,000) × 2/3…………………………………… 20,000
2015: ($108,000 – $18,000 – $60,000 – $20,000 – $7,200*)………………… 2,800
* Book value should not be reduced below $7,200, the residual value.