Comparing Three Depreciation Methods Dexter Industries purchased packaging equip

Question

Comparing Three Depreciation Methods

Dexter Industries purchased packaging equipment on January 8 for $310,600. The equipment was expected to have a useful life of three years, or 7,500 operating hours, and a residual value of $25,600. The equipment was used for 3,000 hours during Year 1, 2,325 hours in Year 2, and 2,175 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.

2. What method yields the highest depreciation expense for Year 1?
All three depreciation methods

3. What method yields the most depreciation over the three-year life of the equipment?

Depreciation Expense Year Straight-Line Method Units-of-Activity Method Double-Declining-Balance Method Year 1 $ $ $ Year 2 $ $ $ Year 3 $ $ $ Total $ $ $

Explanation / Answer

1.

Double declining balance method.

Straight line depreciation rate = 1/3 = 33.33%

Depreciation rate double decling balance method=33.33 % x 2 = 66.66

Given that the salvage value is 25600. But the opening balance of the third year is 34525. Hence the depreciation for the third year restricted to 8925 (34525-25600)

2. Double declining balance method

3. The three methods give same depreciation ; 285000

Straight Line method Units-of-Activity method Double Declining balance method Year 1 (310600-25600)/3=95000 (310600-25600)/7500 x3000=114000 207046 Year 2 95000 (310600-25600)/7500 x 2325= 88350 69029 Year 3 95000 (310600-25600)/7500 x 2175=82650 8925 Total 285000 285000 285000

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