Question

Dexter Industries purchased packaging equipment on January 8 for $87,200. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $7,200. The equipment was used for 8,590 hours during Year 1, 7,370 hours in Year 2, and 4,040 hours in Year 3.

	Required:
1.	Determine the amount of depreciation expense for the three years ended 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. (Note: For STRAIGHT-LINE ONLY, round the first two years to the nearest whole dollar, then round the third year as necessary. For DECLINING BALANCE ONLY, round the multiplier to five decimal places. Then round the answer for each year to the nearest whole dollar.)
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?

1	Year	Straight-Line Method	Units-of-Activity Method	Double-Declining-Balance Method
2	Year 1
3	Year 2
4	Year 3
5	Total

What method yields the highest depreciation expense for Year 1?

Straight-line method

Units-of-output method

Double-declining-balance method

All three depreciation methods

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

Straight-line method

Units-of-output method

Double-declining-balance method

All three depreciation methods

Answer 1

Cost of the Equipment 87200 Less : Salvage Value 7200 Depreciable Value of the Equipment 80000 Life of the Equipment Life of the Equipment 20000 Straight Line Method Annual Depreciation : Depreciable Value / Life annual Depreciation : 80000/3 26667 Units of Activity Method Annual Depreciation : Depreciable Value / Life Depreciation Per unit : 80000/20000 4.00 Units of Activity Method Year Units Year 1 8590 Year 2 7370 Year 3 4040 Double Declining balance Method Rate of Depreciation = (1/ Life) 2 Depreciation Rate = (1/3)*2 67% Depreciation Double Declining balance Method Depreciation Year Expenses Year 1 58133 Year 2 19378 Year 3 2489 Depreciation 34360 29480 16160

Year Double Declining balance Method Book Value Depreciation % Depreciation Book value 87200 67% 58133 29067 29066.66667 67% 19378 9689 9689| 67% 2489 7200 3 Year 1 Year 2 Year 3 Total Answers Straight Line Units of Activity Double Declining Method Method balance Method 26667 34360 58133 26667 29480 19378 26666.67 16160 2489 80000 80000 80000 WhichMethod Yield highest depreicaiotn in Year 1 Double Declining balance Method All three Methods which Method yields most depreciation