Question

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,400. The equipment was expected to have a useful life of four years, or 8,400 operating hours, and a residual value of $26,400. The equipment was used for 3,200 hours during Year 1, 2,600 hours in Year 2, 1,500 hours in Year 3, and 1,100 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-activity 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-Activity Method			Double-Declining-Balance Method
Year 1		$			$			$
Year 2		$			$			$
Year 3		$			$			$
Year 4		$			$			$
Total		$			$			$

2. What method yields the highest depreciation expense for Year 1?
Double-declining-balance method

3. What method yields the most depreciation over the four-year life of the equipment?
Units-of-output method

Answer 1

Part 1 ) Calculation of Depreciation under all methods

STRAIGHT LINE METHOD

= ( Cost - Salvage Value)/ Useful Life = (320400 - 26400)/4 = $73500

Depreciation Expense each year for all four years will be $73500

UNITS OF ACTIVITY METHOD

Units of Activity Depreciation rate = ( Cost - Salvage Value)Total Operating hours = (320400 - 26400)/8400 =35

Year	Depreciation
First	3200 *35=112000
Second	2600 *35=91000
Third	1500 *35= 52500
Fourth	1100 *35 = 38500

DOUBLE DECLINING BALANCE METHOD

Rate of depreciation under SLM=73500/294000 *100 = 25%

Double Declining Rate = 25*2 = 50%

Year	Opening value	Rate	Depreciation	Ending Value
First	320400	50%	160200	160200
Second	160200	50%	80100	80100
Third	80100	50%	40050	40050
Fourth	40050	50%	13650	26400

Table showing depreciation under each method

Year	SLM	Units of Activity	Double declining balance method
First	73500	112000	160200
Second	73500	91000	80100
Third	73500	52500	40050
Fourth	73500	38500	13650

Part 2) DOUBLE DECLINING BALANCE METHOD yiels highest depreciation expense for Year 1

Part 3) ALL METHODS yields the same amount of depreciation over all four years of Life of Equipment.

Specifically in only Fourth year, SLM yields highest depreciation