PR 10-3B Depreciation by three methods; partial years
Helix Company purchased tool sharpening equipment on April 1, 2010, for $72,000. The equipment was expected to have a useful life of three years, or 9,000 operating hours, and a residual value of $2,700. The equipment was used for 2,400 hours during 2010, 4,000 hours in 2011, 2,000 hours in 2012, and 600 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.
Answer:
a. Straight-line method:
2010: [($72,000 – $2,700)/3] × 9/12............................................$17,325
2011: ($72,000 – $2,700)/3..................................................... 23,100
2012: ($72,000 – $2,700)/3..................................................... 23,100
2013: [($72,000 – $2,700)/3] × 3/12............................................. 5,775
b. Units-of-production method:
2010: 2,400 hours @ $7.70*........................................................ $18,480
2011: 4,000 hours @ $7.70.......................................................... 30,800
2012: 2,000 hours @ $7.70.......................................................... 15,400
2013: 600 hours @ $7.70.......................................................... 4,620
*($72,000 – $2,700)/9,000 hours = $7.70 per hour
c. Double-declining-balance method:
2010: $72,000 × 2/3 × 9/12...................................... $36,000
2011: ($72,000 – $36,000) × 2/3.................................. 24,000
2012: ($72,000 – $36,000 – $24,000) × 2/3......................... 8,000
2013: ($72,000 – $36,000 – $24,000 – $8,000 – $2,700*)............ 1,300
*Book value should not be reduced below $2,700, the residual value.
Answer:
a. Straight-line method:
2010: [($72,000 – $2,700)/3] × 9/12............................................$17,325
2011: ($72,000 – $2,700)/3..................................................... 23,100
2012: ($72,000 – $2,700)/3..................................................... 23,100
2013: [($72,000 – $2,700)/3] × 3/12............................................. 5,775
b. Units-of-production method:
2010: 2,400 hours @ $7.70*........................................................ $18,480
2011: 4,000 hours @ $7.70.......................................................... 30,800
2012: 2,000 hours @ $7.70.......................................................... 15,400
2013: 600 hours @ $7.70.......................................................... 4,620
*($72,000 – $2,700)/9,000 hours = $7.70 per hour
c. Double-declining-balance method:
2010: $72,000 × 2/3 × 9/12...................................... $36,000
2011: ($72,000 – $36,000) × 2/3.................................. 24,000
2012: ($72,000 – $36,000 – $24,000) × 2/3......................... 8,000
2013: ($72,000 – $36,000 – $24,000 – $8,000 – $2,700*)............ 1,300
*Book value should not be reduced below $2,700, the residual value.