PR 10-3B Depreciation by three methods; partial years Layton Company purchased t

Question

PR 10-3B Depreciation by three methods; partial years Layton Company purchased tool sharpening equipment on October 1, 2014, for $108,00 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 2014, 4,200 hours in 2015, 3,650 hours in 2016, and 2,800 hours in 2017. Instructions Determine the amount of depreciation expense for the years ended December 31, 2014 2015, 2016, and 2017, by (a) the straight-line method, (b) the units -of -output method, and (c) the double -declining -balance method.

Explanation / Answer

A. Straight line method:

Depreciation = Cost of asset - scrap value / estimated life of asset

= 108000 - 7200 / 3 = 33600

for 2014, depreciation = 33600 * 3 / 12 = 8400

2015 , depreciation = 33600

2016 , depreciation = 33600

2017, depreciation = 25200 ( 8400 + 33600+ 33600 - (108000 -7200).

B. Units of output method

Depreciation = Cost of asset - scrap value / estimated life of hours

= 108000 - 7200 / 12000 = 8.4

For 2014 , depreciation = 1350 hours * 8.4 = 11340

2015 depreciation = 4200 * 8.4 = 35280

2016 depreciation = 3650 * 8.4 = 30660

2017 depreciation = 2800 * 8.4 = 23520

C. double declining balance method :

Double declining method means 200% of depreciation.

Depreciation = Cost of asset / estimated life of asset

= 108000 / 3 = 36000

For 2014 , depreciation = 36000 * 3 / 12 = 9000 * 200% = 18000

2015 , depreciation = 108000 - 18000 / 3 = 30000 * 200% = 60000

2016 , depreciation = 90000 - 60000 / 3 = 10000 * 200% = 20000

2017 , depreciation = 18000 + 60000 +20000 - (108000 -7200) = 2800.

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