Question

Dexter Industries purchased packaging equipment on January 8 for $105,200. 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 8,520 hours during Year 1, 6,940 hours in Year 2, and 4,540 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?

Depreciation Expense

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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.)

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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

Feedback

Check My Work

1. Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation.

Annual units-of-production depreciation allocates the cost of the asset equally over the units produced (hours).

The double-declining rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation. In the first year, the balance in the accumulated depreciation account is zero.

Final Questions

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2. What method yields the highest depreciation expense for Year 1?

Straight-line method

Units-of-output method

Double-declining-balance method

All three depreciation methods

Answer 1

1.
Straight line Depreciation = ($105200-7200)/3

Year	Beginning Book Value	Annual Dep	Acc Dep	Ending Book Value
1	$          1,05,200	$             32,667	$             32,667	$             72,533
2	$             72,533	$             32,667	$             65,334	$             39,866
3	$             39,866	$             32,666	$             98,000	$               7,200

2. Units of Production = ($105200-7200)/20000 = $4.90 hours

Year	Hours Used	Annual Dep	Acc Dep	Ending Book Value
1	8520	$             41,748	$             41,748	$             63,452
2	6940	$             34,006	$             75,754	$             29,446
3	4540	$             22,246	$             98,000	$               7,200

3.

Year	Beginning Book Value	Annual Dep	Acc Dep	Ending Book Value
1	$          1,05,200	$             70,133	$             70,133	$             35,067
2	$             35,067	$             23,378	$             93,511	$             11,689
3	$             11,689	$               4,489	$             98,000	$               7,200