Layton Company purchased tool sharpening equipment on October 1 for $29,160. The equipment was expected to have a useful life of three years or 3,780 operating hours, and a residual value of $810. The equipment was used for 700 hours during Year 1, 1,300 hours in Year 2, 1,100 hours in Year 3, and 680 hours in Year 4.

Straight-line method

December 31, 2012: $9,450 x 3/12 = $2,362.5

December 31, 2013: $9,450

December 31, 2014: $9,450

December 31, 2015: $9,450 x 9/12 = $7,087.5

Unit-of-production method:

December 31, 2012: 700 hours x 7.5* = $5,250

December 31, 2013: 1,300 hours x 7.5 = $9,750

December 31, 2014: 1,100 hours x 7.5 = $8,250

December 31, 2015: 680 hours x 7.5 = $5,100

7.5*: ($29,160 - $810) / 3,780 operating hours

Double declining method:

December 31, 2012: $29,160 x 2/3 x 3/12= $4,860

December 31, 2013: ($29,160 - $4,860) x 2/3 = $16,200

December 31, 2014: ($29,160 - $4,860 - $16,200) x 2/3 = $5,400

December 31, 2015: ($29,160 - $4,860 - $16,200 - $5,400) x 2/3 x 9/12 = $1,350

Explanation:

Requirement of the question: Determine the amount of depreciation expense for the years ended December 31, 2012, 2013, 2014, and 2015, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method.

(a) Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($29,160 - $810) / 3 years = $9,450 yearly depreciation expense.

(b)The unit-of-production method is used when the asset value closely relates to the units of output it is able to produce. It is expressed with the formula below:

(Original Cost - Salvage value) / Estimated production capacity x Units/year

(c) The double-declining method is otherwise known as the reducing balance method and is given by the formula below:

Double declining method = 2 X SLDP X BV

SLDP = straight-line depreciation percentage

BV = Book value

SLDP is 100%/3 years = 33.33%, then 33.33% multiplied by 2 to give 66.67% or simply 2/3

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