Question

Comparing three depreciation methods Dexter Industries purchased packaging equipment on January 8 for $90,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,200 hours during Year 1, 5,400 hours in Year 2, and 5,400 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 Straight-Line Method Units-of-Activity Method Double-Declining-Balance Method Year Year 1 $ $ $ Year 2 $ $ Year 3 Total 2. What method yields the highest depreciation expense for Year 1? Double-declining-balance method 3. What method yields the most depreciation over the three-year life of the equipment? All three depreciation methods

Answer 1

rate positively ..

	Straight line method
			Computation of depreciable value
		i	Total cost		90000
		ii	Salvage value		4500
		iii=i-ii	Depreciable value		85500
		iv	Usefull life =		3
		v=iii/iv	Annual depreciation =		28500
	Unit of activity method
		Depreciation per activity = (Total cost - salvage value) / total unit
		Total mile =		(90000-4500)/18000		4.75
	Double declining method rate =			=2/3
				66.67%
Solution -
	Year		Straight line		Unit of activity			Double declining method
	1		28500		34200	4.75*7200		60000	90000*66.66%
	2		28500		25650	4.75*5400		20000	(90000-60000)*66.66%
	3		28500		25650	4.75*5400		5500	(85500-60000-20000)
	Total		85500		85500			85500