Layton Company purchased tool sharpening equipment on October 1 for $64,260. The equipment was expected to have a useful life of 3 years or 5,940 operating hours, and a residual value of $1,890. The equipment was used for 1,100 hours during Year 1, 2,100 hours in Year 2, 1,800 hours in Year 3, and 940 hours in Year 4.

Required: Determine the amount of depreciation expense for the years ended December 31 of Year 1, Year 2, Year 3, and Year 4 by using the following methods:

a. Straight-line method
b. Units-of-activity method
c. Double-declining-balance method

Note: For the declining balance method, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

Question

13-07-2024
Business

College

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Layton Company purchased tool sharpening equipment on October 1 for $64,260. The equipment was expected to have a useful life of 3 years or 5,940 operating hours, and a residual value of $1,890. The equipment was used for 1,100 hours during Year 1, 2,100 hours in Year 2, 1,800 hours in Year 3, and 940 hours in Year 4.

Required: Determine the amount of depreciation expense for the years ended December 31 of Year 1, Year 2, Year 3, and Year 4 by using the following methods:

a. Straight-line method
b. Units-of-activity method
c. Double-declining-balance method

Note: For the declining balance method, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

Answer :

Final answer:

The depreciation expense for the Layton Company's tool sharpening equipment can be calculated using three methods - straight-line, units-of-activity, and double-declining-balance, each giving a different depreciation expense for each year based on the method's specific approach to depreciation.

Explanation:

In order to answer your question about the depreciation expense of the Layton Company's tool sharpening equipment, we'll need to use three different methods of depreciation calculation: the straight-line method, the units-of-activity method, and the double-declining-balance method.

(a) Straight-Line Method: This method distributes the depreciation evenly over the asset's useful life. We start by subtracting the asset's residual value ($1,890) from the purchase price ($64,260), and then divide that by the asset's useful life (3 years). This gives us a yearly depreciation expense of $20,790.

(b) Units-of-Activity Method: Here, depreciation is based on the use of the asset, in this case, operational hours. Substract residual value from purchase cost, and divide by total estimated operational hours to get expense per hour. Multiply this by each year's usage for respective year's depreciation.

(c) Double-Declining-Balance Method: This method accelerates depreciation, with more expense in early years. We double the straight-line depreciation rate (2/3 = 0.6666 or 66.67%) and apply this to the book value at start of each year. Bear in mind that depreciation cannot reduce the asset's book value below the residual value.

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