PR 10-2B Comparing three depreciation methods Waylander Coatings Company purchas

Question

PR 10-2B Comparing three depreciation methods Waylander Coatings Company purchased waterproofing equipment on January 6, 2015 for $320,000. The equipment was expected to have a useful life of four years, or 20,000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during 2015, 6,400 hours in 2016, 4,400 hours in 2017, and 2,000 hours in 2018. Instructions 1. Determine the amount of depreciation expense for the years ended December 31, 2015, OB).2 2016, 2017, and 2018, 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. The following columnar headings are suggested for recording the depreciation expense amounts: Straight- Line Method Depreciation Expense Units-of- Output Double-Declining- Balance Method Method Year Continued

Explanation / Answer

1) Cost of equipment 320000 Life of the equipment 4 Residual Value 35000 80000 Operating hours 20000 0.25 a) Straight line method Depreciation per year (320000-35000)/4 71250 b) units of output method Depreciation per year Year Operarting hour Depreciation 2015 7200 102600 300000 108000 2016 6400 91200 2017 4400 62700 2018 2000 28500 20000 c) Double declining balance method Depreciation rate 2Xstraight line depreciation 50% Year Cost Depreciation Rate Depreciation Accumulated dep Book Value 2015 320000 50% 160000 160000 160000 2016 50% 80000 240000 80000 2017 50% 40000 280000 40000 2018 50% 5000 285000 35000 Depreciation Expense Straight line Method units of productions DDB 2015 71250 102600 160000 2016 71250 91200 80000 2017 71250 62700 40000 2018 71250 28500 5000 285000 285000 285000 2 Double Declining Method yields the highest depreciation expense for 2015 3 All methods yeilds same depreciation over the four year life of equipment.

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