Question

Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000. The equipment was expected to have a useful life of four years, or 20,000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during Year 1, 6,400 hours in Year 2, 4,400 hours in Year 3, and 2,000 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.

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?

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

Answer 1

1.Depreciation Under Stright Line Method

Depreciation             = ( Cost of the Equipment – Salvage Value ) / Usefull Life

                                    = ( $ 320000 - $ 35000 ) /4 Years

                                    = $ 71250 year

Depreciation Year 1            = $ 71250

Depreciation Year 2            = $ 71250

Depreciation Year 3            = $ 71250

Depreciation Year 4            = $ 71250

2.Depreciation Under Units of Production Method

Depreciation = [(Cost of Equipment - Residual Value) / Estimated Total Hours] x Actual Hours

Depreciation Year 1 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 7200 Hours

                                    = $ 102600

Depreciation Year 2 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 6400 Hours

                                    = $ 91200

Depreciation Year 3 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 4400 Hours

                                    = $ 62700

Depreciation Year 4 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 2000 Hours

                                    = $ 28500

Depreciation Year 1                        = $ 102600

Depreciation Year 2                        = $ 91200

Depreciation Year 3                        = $ 62700

Depreciation Year 4                        = $ 28500

3.Depreciation Under DDB Method

Year	Book Value Begining	Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining	Net Book Value End
1	$ 320000	$ 160000	$ 160000
2	$ 160000	$ 80000	$ 80000
3	$ 80000	$ 40000	$ 40000
4	$ 40000	$ 5000 (b/f)	$ 35000

***Stright Line Rate = 1/4 = 25%

Depreciation Year 1                        = $ 160000

Depreciation Year 2                        = $ 80000

Depreciation Year 3                        = $ 40000

Depreciation Year 4                        = $ 5000