Question

1. Comparing Three Depreciation Methods

   Waylander Coatings Company purchased waterproofing equipment on January 6 for $252,000. The equipment was expected to have a useful life of four years, or 6,800 operating hours, and a residual value of $20,800. The equipment was used for 2,600 hours during Year 1, 2,100 hours in Year 2, 1,200 hours in Year 3, and 900 hours in Year 4.

   Required:

   1. Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, 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 four years by each method.
   
   Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then 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		$			$			$
   Year 4		$			$			$
   Total		$			$			$

   2. What method yields the highest depreciation expense for Year 1?
   

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

Answer 1

Answer with working notes is given below

1. Depreciation Expense Year Straight Line Units of Activity Year 1 Year 2 Year 3 Year 4 Totals $57,800 $57,800 $57,800 $57,800 $231,200 $88,400 $71,400 $40,800 $30,600 $231,200 Double Declining Balance $126,000 $63,000 $31,500 $10,700 $231,200 DDB method yields the highest depreciation expense for Year 1 3 All method yields the same depreciation over the four-year life of the equipment Calculations Straight Line method Residual Cost value $252,000 $20,800 Years 4 Yearly Depreciation $57,800 / Units of Activity Method Cost Residual value / Total operating hours 6,800 Rate Per hour $252,000 $20,800 $34.00 Year Rate Year 1 Year 2 Year 3 Year 4 $34.00 $34.00 $34.00 $34.00 Operating hours 2,600 2,100 1,200 900 Yearly Depreciation $88,400 $71,400 $40,800 $30,600 Double declining balance method Opening Year Rate Balance Year 1 $252,000 50.00% Year 2 $126,000 50.00% Year 3 $63,000 50.00% Year 4 $31,500 Yearly Depreciation $126,000 $63,000 $31,500 $10,700 closing balance $126,000 $63,000 $31,500 $20,800 Year 4 Depreciation will be $10,700 to keep Residual value as balance Double Declining method working number of years useful life Depreciation rate of assets (1/number of years) DDB Depreciation rate 25.00% 50.00% (25% * 2)