Question

PR 10-2B Comparing three depreciation methods OBJ. 2 oWaylander Coatings Company purchased waterproofing equipment on January 6, 2015, for $320,000. The equipment was expected to have a useful life of four years, or 20,000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during 2015, 6,400 hours in 2016, 4,400 hours in 2017, and 2,000 hours in 2018. Instructions 1. Determine the amount of depreciation expense for the years ended December 31, 2015, 2016, 2017, and 2018, by (a) the straight-line method, (b) the units-of-output method, o and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. The following columnar headings are suggested for recording the depreciation expense amounts: Depreciation Expense Double-Declining- Balance Method Units-of- Output Method Straight- Line abMethod Year (Continued)

Answer 1

Solution:

Depreciation Expense per year and total depreciation:

Year	Straight-Line Method	Units-of-Output Method	Double-Declining-Balance Method
2015	$              71,250	$           102,600	$                 160,000
2016	$              71,250	$             91,200	$                   80,000
2017	$              71,250	$             62,700	$                   40,000
2018	$              71,250	$             28,500	$ 5,000
Totals	$           285,000	$           285,000	$ 285,000

Notes:

1) Straight-Line Method Depreciation = ( Cost - Salvage Value) / Number of years

= ( $ 320,000 - $ 35,000) / 4 years = $71,250.

2) Units-of-Output Method

Year	Units-of-Output Depreciation	Units	Calculation
2015	$     102,600	7,200	(320000-35000)/20000 hrs * 7200 hrs
2016	$       91,200	6,400	(320000-35000)/20000 hrs * 6400 hrs
2017	$       62,700	4,400	(320000-35000)/20000 hrs * 4400 hrs
2018	$       28,500	2,000	(320000-35000)/20000 hrs * 2000 hrs
Totals	$     285,000	20,000

3) Double-Declining-Balance Method:

Year	Opening Balance	Depreciation	Accumulated Depreciation	Closing Balance
2015	$           320,000	$           160,000	$                 160,000	$        160,000
2016	$           160,000	$             80,000	$                 240,000	$          80,000
2017	$              80,000	$             40,000	$                 280,000	$          40,000
2018	$              40,000	$ 5,000	$ 285,000	$ 35,000

Under double declining method, depreciation is calculation as follows:

Depreciation Rate = 1/ useful life * 2 = (1 / 4) * 2 = 50% per year on opening balance.

Salvage is considered in the end and adjust the last year depreciation based on salvage value

2018 Depreciation Expense = 2018 Opening Balance - Salvage Value = $ 40,000 - $ 35,000 = $ 5,000.

Disclaimer:

1) Around $1 differences will be there because of rounding off.