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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
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 3 years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,200 hours during Year 1, 5,400 hours in Year 2, and 5,400 hours in Year 3. Required: 1. Determine the amount of depreciation expense for the 3 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 3 years by each method. Do not round intermediate calculations when determining the depreciation rate. Round the final answers for each year to the nearest whole dollar. Depreciation Expense Straight-Line Method Units-of-Activity Double-Declining- Balance Method Year Method Year 1 16,500 X 29,000 X 35,280 X Year 2 12,375 X 21,750 X 21,168 X Year 3 12,375 X 12,250 X 0 X Total 41,250 X 63,000 X 56,448 X 2. What method yields the highest depreciation expense for Year 1? Double-declining-balance method 3. What method yields the most depreciation over the 3-year life of the equipment? Units-of-activity method Feedback Check My Work Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation. Annual units-of-activity depreciation allocates the cost of the asset equally over the units produced (hours). The double-declining-balance rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation. In the first year, the balance in the accumulated depreciation account is zero. Compare the total depreciation for all methods over the time period. Recall that straight-line method allocates the depreciable cost of the asset equally over the period of use, while double-declining-balance method is an accelerated method.
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