Question

At the beginning of last​ year, Billings Corporation purchased a piece of heavy equipment for $ 66,000. The equipment has a life of five years or 100,000 hours. The estimated residual value is $ 6,000. Bremond used the equipment for 22,000 hours last year and 27,000 hours this year. Depreciation expense for year two using​ double-declining-balance (DDB) and​ units-of-production (UOP) methods would be as​ follows:

Answer 1

Answer:

The depreciation expense for 2nd year as per:

1. DDB would have been $15,840
2. UOP would have been $16,200

Explanation:

Double declining balance method:

Depreciation rate as per straight line method = $\frac{100}{5}$

Depreciation rate as per straight line method = 20%

Depreciation rate for double declining method is twice of depreciation rate of straight line method.

Thus,

Depreciation rate as per double declining method = 2×20% = 40%

Depreciation expense (1st year) = $66,000×40% = $26,400

Book value (at end of 1st year) = $66,000 - $26,400 = $39,600

Depreciation expense (2nd year) = $39,600×40% = $15,840

Units of production method:

Depreciable value = Cost - Salvage value

Depreciable value = $66,000 - $6,000

Depreciable value = $60,000

Depreciation per hour = $\frac{Depreciable value}{Total hours}$

Depreciation per hour = $\frac{ 60,000}{100,000}$

Depreciation per hour = $0.6

No. of hours equipment worked in 2nd year = 27,000

Depreciation expense (2nd year) = Depreciation per hour×No. of hours equipment worked in 2nd year

Depreciation expense (2nd year) = $0.6×27,000

Depreciation expense (2nd year) = $16,200