Question

Comparing Three Depreciation Methods Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000. The equipment was expected to have a us e of four years of 20.000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during Year 1, 6,400 hours in Year 2, 4,400 hours in Year 3, and 2,000 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 Units-of-Activity Method Year Straight-Line Method Double-Declining-Balance Method Year 1 Year 3 Year 4 Total 2. What method yields the highest depreciation expense for Year 17 3. What method yields the most depreciation over the four year life of the equipment?

Answer 1

Cost of the Equipment 320000 Less : Salvage Value 35000 Depreciable Value of the Equipment 285000 Life of the Equipment Life of the Equipment 20000 Straight Line Method Annual Depreciation : Depreciable Value / Life annual Depreciation :285000/4 71250 Units of Activity Method Annual Depreciation : Depreciable Value / Life Depreciation Per unit : 285000/20000 14.25 Units of Activity Method Year Units Year 1 7200 Year 2 6400 Year 3 4400 Year 4 2000 Double Declining balance Method Rate of Depreciation = (1/ Life) 2 Depreciation Rate = (1/4)*2 50% Double Declining balance Method Depreciation Year Expenses Year 1 160000 Year 2 80000 Year 3 40000 Year 4 5000 Depreciation 102600 91200 62700 28500

Year Double Declining balance Method Book Value Depreciation % Depreciation Book value 320000 50% 1600001 1600001 160000 50% 80000 80000 80000 50% 40000 40000 40000 50% 5000 350001 2 3 Year 1 Year 2 Year 3 Answers Straight Line Units of Activity Double Declining Method Method balance Method 71250 102600 160000 71250 91200 80000 71250 62700 40000 71250 28500 5000 285000 285000 285000 Total WhichMethod Yield highest depreicaiotn in Year 1 which Method yields most depreciation Double Declining balance Method All three Methods