Comparing Three Depreciation Methods Newbirth Coatings Company purchased waterpr

Question

Comparing Three Depreciation Methods

Newbirth Coatings Company purchased waterproofing equipment on January 2, 2011, for $643,600. The equipment was expected to have a useful life of four years, or 7,200 operating hours, and a residual value of $53,200. The equipment was used for 2,700 hours during 2011, 2,200 hours in 2012, 1,300 hours in 2013, and 1,000 hours in 2014.

Required:

1. Determine the amount of depreciation expense for the years ended December 31, 2011, 2012, 2013, and 2014, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

2. What method yields the highest depreciation expense for 2013?
SelectStraight-line methodUnits-of-output methodDouble-declining-balance methodAll three depreciation methodsItem 16

3. What method yields the most depreciation over the four-year life of the equipment?
SelectStraight-line methodUnits-of-output methodDouble-declining-balance methodAll three depreciation methodsItem 17

Explanation / Answer

Question 1. Purchase price 643600 Residual Value 53200 Depreciable Value 590400 Useful life in years 4 Annual Depreciation (590,400/4) 147600 Yearly Operating Hours 7200 Depreciation per operating hour (590,400/7200) 82 Depreciation using Outtput method Year No of Hours Depreciation 2011 2700 221400 2012 2200 180400 2013 1300 106600 2014 1000 82000 Depreciation using Double Declining Method %age of Depreciation under streight line method =1/4= 25% So, Depreciation under Double declining method = 2 x 25% = 50% Beginning Ending Year Amount Depreciation Balance 2011 643600 321800 321800 2012 321800 160900 160900 2013 160900 80450 80450 2014 80450 40225 40225 Streight line Units of Double Year Method Output method Declining 2011 147600 221400 321800 2012 147600 180400 160900 2013 147600 106600 80450 2014 147600 82000 40225 Total 590400 590400 603375 Question 2. Answer: Streight line method. Question 3. Answer: Double Declining Method.

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