Question

CengageNOWv2 Online teach X MATH 1220 - College Algebra X W Document 3.docx - Microsoft X Engagenow.com/ilm/take Assignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inpro... Comparing Three Depreciation Methods Dexter Industries purchased packaging equipment on January 8 for $534,400. The equipment was expected to have a useful life of three years, or 5,700 operating hours, and a residual value of $44,200. The equipment was used for 2,280 hours during Year 1, 1,767 hours in Year 2, and 1,653 hours in Year 3. Required: 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. Note: For all methods, round the answer 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 s 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? Check My Work more Check My Work uses remaining Next All work saved

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Answer 1

Answer :

1) Depreciation expense

Year	straight line method	units of activity method	Double declining method
1	$1,63,400	$1,96,080	$3,56,284
2	$163,400	$1,51,962	$1,18,750
3	$1,63,400	$1,42,158	$39,579
Total	$4,90,200	$4,90,200	$5,34,365

2) Depreciation under Double declining method gives you the highest depreciation in the year 1.

3) Depreciation under straight line method yields most Depreciation over the three years life of the equipment.

Explanation:

Step 1: Depreciation under straight line method :

Depreciation = (cost of the asset - salvage value) ÷ life of the asset

Year 1 Depreciation = ($5,34,400 - $44,200) ÷ 3

= $4,90,200 ÷ 3

= $1,63,400

Note : Under straight line method depreciation going to be same for every year.

Step 2 : Depreciation under units of production method :

Depreciation = {(cost of asset - salvage value) ÷ total number of hours } × actual number of hours

Depreciation for year 1 :

= {($5,34,400 - $44,200) ÷ 5,700} × 2,280

= ($4,90,200 ÷ 5,700) × 2,280

= $86 × 2,280

= $1,96,080

Depreciation for year 2 :

= {($5,34,400 - $44,200) ÷ 5,700} × 1,767

= ($4,90,200 ÷ 5,700) × 1,767

= $86 × 1,767

= $1,51,962

Depreciation for year 3 :

= {($5,34,400 - $44,200) ÷ 5,700} × 1,653

= ($4,90,200 ÷ 5,700) × 1,653

= $86 × 1,653

= $1,42,158

Step 3 :

) Depreciation under double declining Balance method :

Cost of the asset = $ 5,34,400

Salvage Value = $ 44,200

The useful life of the asset = 3 years

Depreciation rate = 2 × 1/useful life × 100

= 2 × (1/3) × 100

= 66.6666%

= 66.67% (rounded off)

Double-declining balance formula = Cost of the asset × Depreciation rate.

Year 1 Depreciation = $5,34,400 × 66.67%

= $3,56,284

Carrying amount at end of year 1 = $5,34,400 - $3,56,284

= $1,78,116

Year 2 Depreciation = $1,78,116 × 66.67%

= $1,18,750

Carrying amount at end of year 2 = $1,78,116 - $1,18,750

= $59,365

Year 3 Depreciation = $59,365 × 66.67%

= $39,579