Question

Comparing three depreciation methods

Dexter Industries purchased packaging equipment on January 8 for $90,000. The equipment was expected to have a useful life of three years, or 22,500 operating hours, and a residual value of $4,500. The equipment was used for 9,000 hours during Year 1, 6,750 hours in Year 2, and 6,750 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.

Year	Straight-line method	Units of activity method	double balancing line method
year 1	$	$	$
year 2	$	$	$
year 3	$	$	$
total	$	$	$

Answer 1

Cost of the Equipment 90000 Less : Salvage Value 4500 Depreciable Value of the Equipment 85500 Life of the Equipment Life of the Equipment 22500 Straight Line Method Annual Depreciation : Depreciable Value / Life annual Depreciation : 85500/3 28500 Units of Activity Method Annual Depreciation : Depreciable Value / Life Depreciation Per unit : 170150/136120 3.80 Units of Activity Method Year Units Year 1 9000 Year 2 6750 Year 3 6750 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 60000 Year 2 20000 Year 3 5500 Depreciation 34200 25650 25650)

Year Double Declining balance Method Book Value Depreciation % Depreciation Book value 90000 30000 3 0000 67% 20000 10000 10000 67% 55001 4500 67% 1 bUUUUU 2 3 Year 1 Year 2 Year 3 Total Answers Straight Line Units of Activity Double Declining Method Method balance Method 28500 34200 60000 28500 25650 20000 28500 25650) 5500 85500 85500 85500