Question

Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3.

Required:

1. Determine the amount of depreciation expense for the three years ending December 31, by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. Round the final answers for each year to the nearest whole dollar.

Depreciation Expense
Year	Straight-Line Method			Units-of-Activity Method			Double-Declining-Balance Method
Year 1		$			$			$
Year 2		$			$			$
Year 3		$			$			$
Total		$			$			$

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the three-year life of the equipment?

Answer 1

Depreciation Expense 1) Units-of-Activity Double-Declining- Straight-Line Year Method Method Balance Method 22,500 S 22,500 S 22,500 S 67,500 $ 28,500 S 22,500 S 16,500 S 67,500 S 48,000 16,000 3,500 Year 1 Year 2 $ Year 3 Total 67,500 Straight Line Method Cost of Equipment Less :Residual Value of equipment Depreciable cost of equipment Useful life 72,000 (4,500) 67,500 3 years Depreciation per year ( Straight line) = Depreciable cost/ Useful life $67500 Depreciation per year ( Straight line ) = 3 22,500 Under Staraight line method of Depreciation , depreciation expenses for each year will be same over the useful life of the asset

Units of Activity method Depreciation expense Depreciation rate Depreciation Operating hours Year per hour expense 3.75 S 3.75 S 3.75 S Year 1 7600 28,500 22,500 6000 Year 2 Year 3 4400 16,500 Compuation of Depreciation Cost per Operating Hour Cost of Macine Less :Residual Value of equipment Depreciable cost of equipment Total Operating Hours Depreciation ost per Operating Hour 72,000 (4,500) $ 67,500 18000 $ 3.75 ($ 67500/18000)

Double Declining Balance method Accumulated Book value Book value Depreciation Depreciation Rate Year at the end of Beginning at the end of expense year the year 48,000 64,000 S 67,500 S 66.6667% S 66.6667% S 66.6667% S 48,000 16,000 S 3,500 S 72,000 Year 1 24,000 8,000 Year 2 24,000 Year 3 8,000 4,500 Depreciation Book value* Depreciation Rate Double Declining rate 1/useful life x l00 x 2 1/3 x100 x2 Double Declining rate 66.6667% = Note : Under Double Declining Balance method, depreciation allowed up to the point where book value Residuval Value. In This Problem less Depreciation Provided instead of Actual Depreciation to maintain Residuval value at the end of year 3. In the year 1, Double Decining method yeilds the most depreciation expense i.e S 48000 2) 3) Over the three year life of equipment, all the three methods of deprciation gives same amount of |depreciation of $ 67500.