Question

# Comparing Three Depreciation Methods Dexter Industries purchased packaging equipment on January 8 for \$310,600. The equipment...

Comparing Three Depreciation Methods

Dexter Industries purchased packaging equipment on January 8 for \$310,600. The equipment was expected to have a useful life of three years, or 7,500 operating hours, and a residual value of \$25,600. The equipment was used for 3,000 hours during Year 1, 2,325 hours in Year 2, and 2,175 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 all methods, round the answer 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?
All three depreciation methods

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

1.

 Straight Line method Units-of-Activity method Double Declining balance method Year 1 (310600-25600)/3=95000 (310600-25600)/7500 x3000=114000 207046 Year 2 95000 (310600-25600)/7500 x 2325= 88350 69029 Year 3 95000 (310600-25600)/7500 x 2175=82650 8925 Total 285000 285000 285000

Double declining balance method.

Straight line depreciation rate = 1/3 = 33.33%

Depreciation rate double decling balance method=33.33 % x 2 = 66.66

 Opening balance Depreciation Closing balance Year 1 310600 310600*66.66%=207046 103554 Year 2 103554 103554*66.66%=69029 34525 Year 3 34525 8925* 25600

Given that the salvage value is 25600. But the opening balance of the third year is 34525. Hence the depreciation for the third year restricted to 8925 (34525-25600)

2. Double declining balance method

3. The three methods give same depreciation ; 285000

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