Comparing Three Depreciation Methods Dexter Industries purchased packaging equip
ID: 2570611 • Letter: C
Question
Comparing Three Depreciation Methods Dexter Industries purchased packaging equipment on January 8 for $631,800. The equipment was expected to have a useful life of three years, or 8,400 operating hours, and a residual value of $52,200. The equipment was used for 3,200 hours during Year 1, 2,600 hours in Year 2, and 1,500 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.
Explanation / Answer
1
Calculation of depreciation under straight line method
Depreciation = (Cost-salvage value)/No of years
Cost
$631,800
Residual value
$52,200
Life
3 years
Year 1
Depreciation for year 1 under straight line method (631,800-52200)/3
$193,200
Year 2
Depreciation
$193,200
Year 3
Depreciation
$193,200
2
Calculation of depreciation under double declaiming method
Life
3 years
Cost
$631,800
Residual value
$52,200
depreciation % under straight line method (100/3)
33.3%
depreciation % under double declaiming method (100/8)*2
66.7%
Year 1
Depreciation = (631,800*66.67%)
$421,221.06
Year 2
Depreciation = (631,800-421,221.06)*(66.67%)
$140,392.98
Year 3
Depreciation = (631,800-421,221.06-140,392.98 - 52,200)
$17,985.96
2
Calculation of depreciation under Production units method
Total operating hours
8400
Cost
$631,800
Residual value
$52,200
Year 1
Depreciation = (631,800-52,200)*3,200/8,400)
$220,800.00
Year 2
Depreciation = (631,800-52,200)*2,600/8,400)
$179,400.00
Year 3
Depreciation = (631,800-220,800-179,400-52,200)
$179,400.00
1
Calculation of depreciation under straight line method
Depreciation = (Cost-salvage value)/No of years
Cost
$631,800
Residual value
$52,200
Life
3 years
Year 1
Depreciation for year 1 under straight line method (631,800-52200)/3
$193,200
Year 2
Depreciation
$193,200
Year 3
Depreciation
$193,200
2
Calculation of depreciation under double declaiming method
Life
3 years
Cost
$631,800
Residual value
$52,200
depreciation % under straight line method (100/3)
33.3%
depreciation % under double declaiming method (100/8)*2
66.7%
Year 1
Depreciation = (631,800*66.67%)
$421,221.06
Year 2
Depreciation = (631,800-421,221.06)*(66.67%)
$140,392.98
Year 3
Depreciation = (631,800-421,221.06-140,392.98 - 52,200)
$17,985.96
2
Calculation of depreciation under Production units method
Total operating hours
8400
Cost
$631,800
Residual value
$52,200
Year 1
Depreciation = (631,800-52,200)*3,200/8,400)
$220,800.00
Year 2
Depreciation = (631,800-52,200)*2,600/8,400)
$179,400.00
Year 3
Depreciation = (631,800-220,800-179,400-52,200)
$179,400.00
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