Question

Comparing three depreciation methods

Dexter Industries purchased packaging equipment on January 8 for $90,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $3,600. The equipment was used for 7,200 hours during Year 1, 5,400 hours in Year 2, and 5,400 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.

Depreciation Expense

YearStraight-Line MethodUnits-of-Activity MethodDouble-Declining-Balance Method

Year 1 $  $  $

Year 2 $  $  $

Year 3 $  $  $

Total $  $  $

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?

Answer 1