Question

Dexter Industries purchased packaging equipment on January 8 for $98,000. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $6,000. The equipment was used for 8,980 hours during Year 1, 6,930 hours in Year 2, and 4,090 hours in Year 3. Required: 1. Determine the amount of depreciation expense for the three years ended 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 STRAIGHT-LINE ONLY, round the first two years to the nearest whole dollar, then round the third year as necessary. 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?

Answer 1

a) Straight line :

	Depreciation expense
Year 1	(98000-6000/3) = 30667
Year 2	30667
Year 3	30666

b) Units of activity method :

Dep rate = (98000-6000)/20000 = $4.6 per hour

	Depreciation expense
Year 1	8980*4.6 = 41308
Year 2	6930*4.6 = 31878
Year 3	4090*4.6 = 18814

c) Double decline balance method

Dep rate = 100/3*2 = 66.67%

	Depreciation expense
Year 1	98000*66.66667% = 65333
Year 2	(98000-65333)*66.66667% = 21778
Year 3	4889

2) Highest depreciation expense in year 1 = Double decline balance method

3) All of the three method