Question

Comparing Three Depreciation Methods Waylander Coatings Company purchased waterproofing equipment on January 6 for $571,600. The equipment was expected to have a set the of four years, or 7.500 operating hours, and a resise vee of $47,200. The equipment was used for 2,900 hours during Year 1, 2,400 hours in Year 2, 1,400 hours in Year), and 900 hours in Year 4. Requiredi 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, by 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 5 Total 2. What method yields the highest depreciation expense for Year 17 3. What method yields the most depreciation over the four year ife of the equipment

Answer 1

1.
Straight line Depreciation = (Original Value - Residual Value) / Useful Life
= ($571600-47200) / 4 = $131100

Years	Beg Value	Depreciation	Accumulated Depreciatio	End Value
1	$       571,600	$       131,100	$          131,100	$       440,500
2	$       440,500	$       131,100	$          262,200	$       309,400
3	$       309,400	$       131,100	$          393,300	$       178,300
4	$       178,300	$       131,100	$          524,400	$         47,200

Units of Activity Method = (Original Value - Residual Value) / Total Operating Hours
= ($571600-47200) / 7600 = $69 per hour

Years	Hours	Depreciation	Accumulated Depreciatio	End Value
1	2900	$       200,100	$          200,100	$       371,500
2	2400	$       165,600	$          365,700	$       205,900
3	1400	$         96,600	$          462,300	$       109,300
4	900	$         62,100	$          524,400	$         47,200

Double Declining Balance method = Beginning Book Value x 2 times straight line rate

Years	Beg Value	Depreciation @50%	Accumulated Depreciatio	End Value
1	$       571,600	$       285,800	$          285,800	$       285,800
2	$       285,800	$       142,900	$          428,700	$       142,900
3	$       142,900	$         71,450	$          500,150	$         71,450
4	$         71,450	$         24,250	$          524,400	$         47,200

Maximum Depreciation is such that end book value doesnot get below residual value.
Therefore Depreciation of Year 4 is restricted to $24250

2.
Double Declining Balance method

3.
All methods provide same total depreciation

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