Question

Comparing three depreciation methods Dexter Industries purchased packaging equipment on January 8 for $135,000. The equipment was expected to have a useful life of three years, or 27,000 operating hours, and a residual value of $5,400. The equipment was used for 10,800 hours during Year 1, 8,100 hours in Year 2, and 8,100 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 Units-of-Activity Method Straight-Line Method Double-Declining-Balance Method Year 1 Year 2 Year 3 Total 2. What method yields the highest depreciation expense for Year 17 3. What method yields the most depreciation over the three-year life of the equipment?

Answer 1

PART 1

Depreciation Expense
Year	Straight-Line Method	Units-of-activity method	Double-Declining Balance Method
1	$43,200	$51,840	$90,000
2	$43,200	$38,880	$30,000
3	$43,200	$38,880	$9,600
TOTAL	$129,600	$129,600	$129,600

Depreciation Expense
Year	Straight-Line Method	Units-of-activity method	Double-Declining Balance Method
1	=+(135000-5400)/3	=+(135000-5400)/27000*10800	=+DDB(135000,5400,3,1)
2	=+(135000-5400)/3	=+(135000-5400)/27000*8100	=+DDB(135000,5400,3,2)
3	=+(135000-5400)/3	=+(135000-5400)/27000*8100	=+DDB(135000,5400,3,3)
TOTAL	=+B5+B7+B6	=+C5+C7+C6	=+D5+D7+D6

Part 2 in year 1, DDB method yields highest depreciation of $ 90,000

Part 3 All method yields equal depreciation of $ 129,600

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