Question

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $637,400. The equipment was expected to have a useful life of four years, or 6,800 operating hours, and a residual value of $52,600. 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.

Depreciation Expense
Year	Straight-Line Method	Units-of-Output Method	Double-Declining-Balance Method
Year 1	$	$	$
Year 2	$	$	$
Year 3	$	$	$
Year 4	$	$	$
Total	$	$	$

Answer 1

Answer-a)- Depreciation expense- Straight line Method - Year 1 = $146200.

Year 2 = $146200.

Year 3 = $146200.

Year 4 = $146200.

Explanation- Straight line Method:- Annual Depreciation expense

= Cost of asset- Salvage value of asset/No. of useful life (years)

= ($637400 - $52600)/4 years

= $584800/4 years

= $146200

Answer-b)- Depreciation expense- Activity method (units of output)-

Year 1 = $223600.

Year 2 = $180600.

Year 3 = $103200.

Year 4 = $77400.

Explanation- Activity method (units of output)-

= (Cost – Salvage value) /Total operating hours

=($637400 - $52600)/6800 hours

= $86 per hour

Depreciation expense in Year 1= Depreciation expense per unit*Units produced in 2020

= $86 per hour*2600 hours

= $223600

Depreciation expense in Year 2= Depreciation expense per unit*Units produced in 2020

= $86 per hour*2100 hours

= $180600

Depreciation expense in Year 3= Depreciation expense per unit*Units produced in 2020

= $86 per hour*1200 hours

= $103200

Depreciation expense in Year 4= Depreciation expense per unit*Units produced in 2020

= $86 per hour*900 hours

= $77400

Answer- c)- Depreciation expense- Double Declining balance method- Year 1 = $318700.

Year 2 = $159350.

Year 3 = $79675.

Year 4 = $27075.

Explanation- Double Declining balance depreciation is calculated using the following formula=

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/4 = 0.25 = 25%
Declining Balance Rate = 2*25% = 50%

Depreciation for Year 1 = $637400*50% = $318700

Book value at the end of Year 1 = $637400-$318700 =$318700

Depreciation for Year 2 = $318700*50% = $159350

Book value at the end of Year 2 = $318700-$159350 =$159350

Depreciation for Year 3 = $159350*50% = $79675

Book value at the end of Year 3 = $159350-$79675 =$79675

Depreciation for Year 4 = $79675-$52600

= $27075