Question

Comparing Three Depreciation Methods

Dexter Industries purchased packaging equipment on January 8 for $364,000. The equipment was expected to have a useful life of three years, or 6,300 operating hours, and a residual value of $30,100. The equipment was used for 2,520 hours during Year 1, 1,953 hours in Year 2, and 1,827 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. For all methods, round the answer for each year to the nearest whole dollar.

year	straight line method	units of activity method	double declining balance method
1
2
3
total

Answer 1

• Working

>Straight Line method

A	Cost	$          364,000.00
B	Residual Value	$            30,100.00
C=A - B	Depreciable base	$          333,900.00
D	Life [in years]	3
E=C/D	Annual SLM depreciation	$          111,300.00

>Units of activity method

A	Cost	$          364,000.00
B	Residual Value	$            30,100.00
C=A - B	Depreciable base	$          333,900.00
D	Usage	6,300
E = C/D	Depreciation per hour	$                  53.000

Year	Book Value	Usage	Depreciation expense	Ending Book Value
1	$           364,000.00	2,520	$       133,560.00	$           230,440.00
2	$           230,440.00	1,953	$       103,509.00	$           126,931.00
3	$           126,931.00	1,827	$         96,831.00	$             30,100.00

>Double declining balance

A	Cost	$          364,000.00
B	Residual Value	$            30,100.00
C=A - B	Depreciable base	$          333,900.00
D	Life [in years]	3
E=C/D	Annual SLM depreciation	$          111,300.00
F=E/C	SLM Rate	33.33%
G=F x 2	DDB Rate	66.67%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$           364,000.00	66.67%	$       242,666.67	$           121,333.33	$      242,666.67
2	$           121,333.33	66.67%	$         80,888.89	$             40,444.44	$      323,555.56
3	$              40,444.44		$         10344.00	$             30100.00	$      333,900

• Requirement asked

Year	straight line method	units of activity method	double declining balance method
1	$111,300	$133,560	$242,667
2	$111,300	$103,509	$80,889
3	$111,300	$96,831	$10,344
total	$333,900	$333,900	$333,900