Question

Dexter Industries purchased packaging equipment on January 8 for $111,200. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $7,200. The equipment was used for 8,680 hours during Year 1, 7,360 hours in Year 2, and 3,960 hours in Year 3. Required: 1. Determine the amount of depreciation expense for the three years ended 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. (Note: For STRAIGHT-LINE ONLY, round the first two years to the nearest whole dollar, then round the third year as necessary. For DECLINING BALANCE ONLY, round the multiplier to five decimal places. Then round the answer for each year to the nearest whole dollar.) 2. What method yields the highest depreciation expense for Year 1? 3. What method yields the most depreciation over the three-year life of the equipment? X Depreciation Expense 1. Determine the amount of depreciation expense for the three years ended 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. (Note: For STRAIGHT-LINE ONLY, round the first two years to the nearest whole dollar, then round the third year as necessary. For DECLINING BALANCE ONLY, round the multiplier to five decimal places. Then round the answer for each year to the nearest whole dollar.) Depreciation Expense 1 Year Straight-Line Method - Units-of-Activity Method - Double-Declining-Balance Method 2 Year 1 3 Year 2 4 Year 3 5 Total X Final Questions 2. What method yields the highest depreciation expense for Year 1? A Straight-line method B Units-of-output method C Double-declining-balance method D All three depreciation methods 3. What method yields the most depreciation over the three-year life of the equipment? A Straight-line method B Units-of-output method C Double-declining-balance method D All three depreciation methods

Answer 1

Straight line method

Annual depreciation = cost – residual value / estimated life = (111200-7200)/3 = 34666.67

Depreciation year 1 = 34667

Depreciation year 2 = 34667

Depreciation year 3 = 34666

Units of activity method

Deprecation rate per unit = (cost – residual value) / estimated units produced = (111200-7200)/20000 = 5.2

Depreciation year 1 = 8680*5.20 = 45136

Depreciation year 2 = 7360*5.20 = 38272

Depreciation year 3 = 3960*5.20 = 20592

Double declining method

Deprecation rate = 1/ estimated life * 2 = 1/3*2 = 0.66667

Deprecation year 1 = 111200*0.66667 = 74134

Deprecation year 2 = (111200-74134)*0.66667 = 24711

Deprecation year 3 = (111200-74134-24711-7200) = 5155

Part 1

Depreciation expense

year	Straight line method	Units of activity method	Double declining method
Year 1	34667	45136	74134
Year 2	34667	38272	24711
Year 3	34666	20592	5155
Total	104000	104000	104000

Part 2

Answer is option C

Double-declining-balance method

Part 3

Answer is option D

All three depreciation methods (all have equal amount of depreciation)