Question

Comparing three depreciation methods Dexter Industries purchased packaging equipment on January 8 for $72,000. 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 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 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.

Answer 1

Answer:

a) $22,500

b) 3.75 per unit

c) 66.67%

Explanation:

As per the data given in the question,

Calculation for amount of depreciation:

Straight line Depreciation = ($72,000 - $4,500)÷3

=$22,500

Unit of production method = ($72,000 - $4,500)÷18,000

= $3.75 per unit

Double decline rate = 100÷3  

= 33.33%×2

= 66.67%

Depreciation Expense

Year        Straight line         Unit of production               Double decline

year 1      $22,500       7,600×$3.75 =$28,500   $72,000×66.67%=$48,000

year 2      $22,500      6,000×$3.75 =$22,500  $24,000×66.67%=$16,000

year 3      $22,500      4,400×$3.75 =$16,500   ($67,500-$64,000)=$3,500

Total        $67,500                              $67,500                                    $67,500