Answer:
See explanation section.
Explanation:
Requirement 1
We know,
Depreciation expense under the straight-line method = (Cost price - residual value) ÷ useful life
The depreciation expense under the straight-line method remains same in every year.
December 31, Year 1 - depreciation expense = ($38,880 - $1,080) ÷ 3 years.
Depreciation expense = ($37,800 ÷ 3)
Depreciation expense = $12,600
Depreciation expense for year 1 = $12,600 × 9 ÷ 12
Depreciation expense for year 1 = $9,450
Requirement 2
The depreciation expense under the straight-line method remains the same every year.
Year 2 depreciation expense = ($38,880 - $1,080) ÷ 3 years = $12,600
Year 3 depreciation expense = ($38,880 - $1,080) ÷ 3 years = $12,600
Year 4 depreciation expense = ($38,880 - $1,080) ÷ 3 years = $12,600
The equipment will be dissolved after 4 year with a residual value of $1,080.
Requirement 3
The depreciation expense under units-of-activity method = [(Cost price - residual value) ÷ Total operating hours] × usage during the period.
Given,
Cost price = $38,880
residual value = $1,080
Total operating hours = 5,400
Putting the values into the formula, we can get
Depreciation expense rate = ($38,880 - $1,080) ÷ 5,400
Depreciation expense rate = $37,800 ÷ 5,400
Depreciation expense rate = $7 per hour.
Depreciation expense for year 1 = $7 per hour × 1,000
Depreciation expense for year 1 = $7,000
Requirement 4
We get from requirement 3
Depreciation expense rate = $7 per hour.
Year 2 Depreciation expense = $7 per hour.
Depreciation expense for year 2 = $7 per hour × 1,900 hour.
Depreciation expense for year 2 = $13,300 hour.
Year 3 Depreciation expense = $7 per hour.
Depreciation expense year 3 = $7 per hour × 1,600 hour.
Depreciation expense year 3 = $11,200 hour.
Year 4 Depreciation expense = $7 per hour.
Depreciation expense year 4 = $7 per hour × 900 hour.
Depreciation expense year 4 = $6,300 hour.
Requirement 5
Depreciation rate under the double-declining-balance method = (100% ÷ useful life) ÷ 2
Depreciation rate = (100% ÷ 3 years) × 2
Depreciation rate = 66.67%
Depreciation expense for year 1 = cost price × depreciation rate
Given,
cost price = $38,880
depreciation rate = 66.67%
Putting the values into the formula, we can get
Depreciation expense for year 1 = cost price × depreciation rate
Depreciation expense for year 1 = $38,880 × 66.67%
Depreciation expense for year 1 = $25,921
Requirement 6
In double-declining-balance method, depreciation expense is decreasing.
Book value of year 1 after depreciation = Cost price - year 1 depreciation expense = $38,880 - $25,921 = $12,959
Depreciation expense for year 2 = Book value of year 1 × depreciation rate.
Depreciation expense for year 2 = ($12,959 × 66.67%) = $8,640
Book value of year 2 after depreciation = Book value of year 1 - Depreciation expense for year 2 = $12,959 - $8,640 = $4,319
Depreciation expense for year 3 = Book value of year 2 × depreciation rate.
Depreciation expense for year 3 = $4,319 × 66.67% = $2,879.50
Book value of year 3 after depreciation = Book value of year 2 - Depreciation expense for year 3 = $4,319 - $2,879.50 = $1,439.5
Depreciation expense for year 4 = Book value of year 3 × depreciation rate.
Depreciation expense for year 4 = $1,439.5 × 66.67% = $960