Question

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?

Answer 1

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