Question

Dexter Industries purchased packaging equipment on January 8 for $116,600. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $6,600. The equipment was used for 8,700 hours during Year 1, 7,380 hours in Year 2, and 3,920 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

1) Depreciation expense : Straight line

Year	Depreciation expense
1	(116600-6600/3) = 36667
2	36667
3	36666
Total	110000

Unit of production :

Year	Depreciation expense
1	(110000/20000)*8700 = 47850
2	7380*5.5 = 40590
3	21560
Total	110000

Double decline balance

Year	Depreciation expense
1	116600*66.66667% = 77733
2	116600*33.33333%*66.66667% = 25911
3	6356
Total	110000

2) Highest depreciation expense = Double decline balance

3) All three method