Question

Comparing three depreciation methods

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		$			$			$

Answer 1

Calculate depreciation expense

Year	Straight line method	Units of activity method	Double decline balance method
Year 1	22500	7600*3.75 = 28500	72000*2/3 = 48000
Year 2	22500	6000*3.75 = 22500	72000*1/3*2/3 = 16000
Year 3	22500	4400*3.75 = 16500	3500
Total	67500	67500	67500

Straight line Depreciation = (72000-4500/3) = 22500

Depreciation expense per hour = (72000-4500)/18000 = 3.75

Double decline rate = 100/3*2 = 66.67%