Need help badly, i\'m up to my neck in make-up work due being sick. I need to fi

Question

Need help badly, i'm up to my neck in make-up work due being sick. I need to finish this today as my semester ends today. Anybody please help! I would really appreciate it. Thank you so very much. Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3. Required: 1. Determine the amount of depreciation expense for the three years ending December 31, 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 five decimal places. Then round the answer for each year to the nearest whole dollar.) 2. What method yields the highest depreciation expense for Year 1? 3. What method yields the most depreciation over the three-year life of the equipment?

Explanation / Answer

2. The double-declining balance method yields the hoghest depreciation for year 1.

3. The depreciation over the three year life under all three methods is the same which is restricted to the depreciable value of the equipment i.e. cost less salvage value.

Workings:

(a) Straight-line method

Depreciable cost = Cost - Salvage value = $72000 - $4500 = $67500

Annual Depreciation Rate = 100% / Life in years = 100% / 3 years = 33.3333%

Annual Depreciation Expense = Depreciable cost x Annual Depreciation Rate

(b) Units of Activity method

Depreciation cost per unit = (Cost - Salvage value) / Life in total units of production = (72000 - 4500) / 18000 = 67500 / 18000 = $3.75 per operating hour

Depreciation cost per unit x Actual units for the year = Annual Depreciation Expense

(c) Double-declining balance method

Straight-line Depreciation Rate = 33.33333%

Double declining depreciation rate = 33.33333% x 200% = 66.66667%

1 Method Year 1 Year 2 Year 3 Total (a) Straight-line 22500 22500 22500 67500 (b) Units of Activity 28500 22500 16500 67500 (c) Double-declining balance 48000 16000 3500 67500

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