Question

Waylander Coatings Company purchased waterproofing equipment on January 6 for $489,200. The equipment was expected to have a useful life of four years, or 6,800 operating hours, and a residual value of $40,400. The equipment was used for 2,600 hours during Year 1, 2,100 hours in Year 2, 1,200 hours in Year 3, and 900 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-output 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.

Answer 1

1. Computation of 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

Depreciation per year under straight-line method = ($489,200 -$40,400)/4 = $112,200

Hence, depreciation for different years will be as follows:

(b) the units-of-output method:

Units-of-production Depreciation rate = (Cost of Asset - Residual Value) / Total Driver Hours

Units-of-production Depreciation rate= ($489,200-$40,400)/6,800 = $66 per hour

Depreciation Expense = Units of production Depreciation x No of hours worked during the Year

Therefore, Depreciation expense for the Year 1 = $66 * 2,600 hours = $171,600

Depreciation expense for the Year 2 = $66 * 2,100 hours = $138,600

Depreciation expense for the Year 3 = $66 * 1,200 hours = $79,200

Depreciation expense for the Year 4 = $66 * 900 hours = $59,400

(c) the double-declining-balance method

Double Declining rate = (100/Useful life)*2 = (100/4)*2 = 50%

Year	Book Value	Depreciation Rate	Depreciation	Net Book Value
	A	B	C=A*B	D=A-C
1	$489,200	50%	$244,600	$244,600
2	$244,600	50%	$122,300	$122,300
3	$122,300	50%	$61,150	$61,150
4	$61,150	50%	$20,750*	40,400

* Although the Depreciation for Year 4 = $61,150 * 50% = $30,575 but which will make the net book value lesser than the residual value and hence the depreciation here will be $20,750.