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

Security IDs Company purchased equipment on July 1, 2010, for $135,000. The equipment was expected to have a useful life of three years, or 12,000 operating hours, and a residual value of $6,000. The equipment was used for 1,500 hours during 2010, 3,500 hours in 2011, 5,000 hours in 2012, and 2,000 hours in 2013. Instructions Determine the amount of depreciation expense for the years ended December 31, 2010, 2011, 2012, and 2013, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Round to the nearest dollar.

Answer:
a. Straight-line method:  
2010: [($135,000 – $6,000)/3] × 1/2........................................... $21,500  
2011: ($135,000 – $6,000)/3....................................................... 43,000
2012: ($135,000 – $6,000)/3....................................................... 43,000  
2013: [($135,000 – $6,000)/3] × 1/2........................................... 21,500

b. Units-of-production method:  
2010: 1,500 hours @ $10.75*.................................................... $16,125  
2011: 3,500 hours @ $10.75 ..................................................... 37,625  
2012: 5,000 hours @ $10.75 ..................................................... 53,750  
2013: 2,000 hours @ $10.75 ..................................................... 21,500
  *($135,000 – $6,000)/12,000 hours = $10.75 per hour

c. Double-declining-balance method:
2010: $135,000 × 2/3 × 1/2......................................................... $45,000  
2011: ($135,000 – $45,000) × 2/3 .............................................. 60,000  
2012: ($135,000 – $45,000 – $60,000) × 2/3.............................. 20,000  
2013: ($135,000 – $45,000 – $60,000 – $20,000 – $6,000*) ..... 4,000
  *Book value should not be reduced below $6,000, the residual value.

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