Gracie West Interiors purchased professional photography and lighting equipment on January 4 for $128,000. The equipment was expected to have a useful life of four years, or 25,000 operating hours, and a residual value of $11,000. The equipment was used for 8,230 hours in year 1, 7,550 hours in year 2, 6,400 hours in year 3, and 2,820 hours in year 4. 1. Determine the amount of depreciation expense for the years ended December 31, year 1, year 2, year 3, and year 4, by (a) straight-line method, (b) units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. 2. What method yields the highest depreciation expense for year 1? 3. What method yields the most depreciation over the four-year life of the equipment? 0 2 3 4 5 3 3 0 4 3 3 3 D 1 2 3 4 5 Depreciation Expense b. Units-of- Activity Years Total Hours Hours a. Straight- Line Year Year 1 Year 2 Year 3 Year 4 Totals Calculations: Straight-line method: (Cost Units-of-activity method: (Cost Year 1 Year 2 Year 3 Year 4 Residual Value) Residual Value) Rate X C. Double-Declining- Balance Yearly Depreciation Rate Yearly Depreciation 3 3 0 1 2 3 # 5 3 B 3 02. 1 2 4 5 3. Double-declining-balance method: Depreciable Balance Rate Year 1 Year 2 Year 3 Since depreciation cannot cause book value to fall below residual value: Depreciable Balance Residual Value Year 4 The method that yields the most depreciation expense in Year 1 is the The method that yields the most total depreciation over the four years is the Yearly Depreciation Yearly Depreciation