Comparing Three Depreciation Methods Coatings Company purchased waterproofing eq

Question

Comparing Three Depreciation Methods Coatings Company purchased waterproofing equipment on January 6 for $421,200. The equipment was expected to have a useful life of four years, or 9,200 operating hours, and a residual value of $34,800. The equipment was used for 3,500 hours during Year 1, 2,900 hours in Year 2, 1,700 hours in Year 3, and 1,100 hours in Year 4 Required: 1. Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) the units- of-output method, and (e) the double-decining-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 ollar Depreciation Expense Year Year 1 Year 2 Year 3 Year 4 Total 2. What method yields the highest depreciation expense for Year 1? Straight-Line Method Units-of-Output Method Double-Declining-Balance Method 3. What method yields the most depreciation over the four-year life of the equipment?

Explanation / Answer

Answer 1 Depreciation Expense Year Straight line method Units of output method Double declining balance method 1 $96,600.00 $147,000.00 $210,600.00 2 $96,600.00 $121,800.00 $105,300.00 3 $96,600.00 $71,400.00 $52,650.00 4 $96,600.00 $46,200.00 $26,325.00 Total $386,400.00 $386,400.00 $394,875.00 Depreciation per year using straight line method = (Cost - residual value) / useful life = ($421200 - $34800) / 4 years = $96,600 Depreciation rate per operating hour under the units of output method = (Cost - residual value) / total operating hours during useful life Depreciation rate per operating hour under the units of output method = ($421200 - $34800) / 9200 hours = $42 per operating hour Depreciation % per year under double declining balance method = 2 * Straight line depreciation rate = 2*25% = 50% Answer 2 Double declining balance method yields highest depreciation expense for Year 1. Answer 3 Double declining balance method yields most depreciation over the four year life of the equipment.

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