Comparing Three Depreciation Methods Dexter Industries purchased packaging equip

Question

Comparing Three Depreciation Methods Dexter Industries purchased packaging equipment on January 8 for $215,400. The equipment was expected to have a useful life of three years, or 7,600 operating hours, and a residual value of $17,800. The equipment was used for 2,900 hours during Year 1, 2,400 hours in Year 2, and 1,400 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 DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar Depreciation Expense Year Straight-Line Method Units-of-Activity Method Double-Declining-Balance Method 75,400 62,400 36,400 174,200 65,867X Year 1 Year 2 Year 3 Total 2. What method yields the highest depreciation expense for Year 1? 143,600x 47,867X 15,956X

Explanation / Answer

Staight line method:

Depeciation expense = Cost of asset - salvage value / estimated life of asset

= $215400 - $17800 / 3 years

= $65867

Depeciation expense $65867 per year for three years

Units of poduction :

Depeciation = $215400 - $17800 / 7600 hous

= $26

Depreciation for year 1 = 2900 hours * $26 = $75400

Depreciation for year 2 = 2400 hours * $26 = $62400

Depreciation for year 3 = 1400 hours * $26 = $36400

Double declinilg balance method:

Straight line depeciation percent = 100% / 3

= 33%

Straight line depreciation rate = 33% * 2

= 66%

Year 1 depreciation = 215400 * 66% = $142164

Year 2 depreciation = ($215400 - $142164) * 66% = $48335.76

Year 3 depeciation = ($215400 - $142164 - $48335.76) * 66% = $16434.1584.

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