Question

dexter industries purchased packaging equipment on january 8 for $444,000. the equipment was expected to have a useful life of three years, or 5,100 operating hours, and a residual value of $36,800. the equipment was used for 2,040 hours during year 1, 1,581 hours in year 2, and 1,479 hours in year 3.

1) determine the amount of depreciation expense for the three years ending December 31, year 1, year 2, year 3, 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.

2) what method yields the highest depreciation expense for year 1?

3) what method yields the most depreciation over the three-year life equipment?

Comparing Three Depreciation Methods Dexter Industries purchased packaging equipment on January 8 for $444,800. The equipment was expected to have a useful life of three years, or 5,100 operating hours, and a residual value of $36,800. The equipment was used for 2,040 hours during Year 1, 1,581 hours in Year 2, and 1,479 hours in Year 3. Required: 1. Determine the amount of depreciation expense for the three years ending December 31, Year 1, Year 2Year 3, 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 all methods, round the answer for each year to the nearest whole dollar Depreciation Expense Straight-Line Method Units-of-Activity Method Double-Declining Balance Method Year 1 Year 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

1.

Straight line depreciation expense = (Cost - Residual Value) / Years

= ($444,000 - $36,800) / 3

= $135,733

Depreciation expense Year 1 = $135,733

Depreciation expense Year 2 = $135,733

Depreciation expense Year 3 = $135,734

Units of activity method

Depreciation expense Year 1 = ($444,000 - $36,800) * (2,040 / 5,100)

= $407,200 * (2,040 / 5,100)

= $162,880

Depreciation expense Year 2 = ($444,000 - $36,800) * (1,581 / 5,100)

= $407,200 * (1,581 / 5,100)

= $126,232

Depreciation expense Year 3 = ($444,000 - $36,800) * (1,479 / 5,100)

= $407,200 * (1,479 / 5,100)

= $118,088

Double declining balance method

Double declining balance rate = Straight line depreciation rate * 2

= (100 / 3) * 2

= 66.66667 or 2/3

Depreciation expense Year 1 = $444,000 * (2/3)

= $296,000

Depreciation expense Year 2 = ($444,000 - $296,000) * (2/3)

= $98,667

Depreciation expense Year 3 = ($444,000 - $296,000 - $98,667 - $36,800)

= $12,533

2.

Double declining balance method yields the highest depreciation expense for year 1.

3.

All the three methods yields the most depreciation over the three year life of the equipment because accumulated depreciation is $407,200 in all the three methods.