Question

Comparing three depreciation methods

Dexter Industries purchased packaging equipment on January 8 for $112,500. The equipment was expected to have a useful life of three years, or 22,500 operating hours, and a residual value of $4,500. The equipment was used for 9,000 hours during Year 1, 6,750 hours in Year 2, and 6,750 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. Round the final answers for each year to the nearest whole dollar.

Depreciation Expense
Year	Straight-Line Method			Units-of-Activity Method			Double-Declining-Balance Method
Year 1		$			$			$
Year 2		$			$			$
Year 3		$			$			$
Total		$			$			$

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?

Answer 1

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. Round the final answers for each year to the nearest whole dollar.

Depreciation Expense
Year	Straight-Line Method			Units-of-Activity Method			Double-Declining-Balance Method
Year 1		$112500-4500/3 = 36000			$112500-4500/22500*9000 = 43200			$112500*2/3 = 75000
Year 2		$36000			$32400			$112500-75000*2/3 = 25000
Year 3		$36000			$32400			$8000
Total		$108000			$108000			$108000

2. What method yields the highest depreciation expense for Year 1?

Double decline method

3. What method yields the most depreciation over the three-year life of the equipment?

All of the three method