Question

Waylander Coatings Company purchased waterproofing equipment on January 6, 2015, 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 2015, 6,400 hours in 2016, 4,400 hours in 2017, and 2,000 hours in 2018.

1. Determine the amount of depreciation expense for the years ended December 31, 2015, 2016, 2017, and 2018, 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.

Answer 1

1	Straight-line
	Year	Book Value year start	Depreciation Life	Depreciation Exp.	Acc. Dep	Book Value year-end
	2015	$320,000	4	$71,250	$71,250	$248,750
	2016	$248,750	4	$71,250	$142,500	$177,500
	2017	$177,500	4	$71,250	$213,750	$106,250
	2018	$106,250	4	$71,250	$285,000	$35,000
	Depreciation per year = ($320,000 - $35,000)/4 = $71,250
2	Double declining balance method
	Year	Book Value year start	Depreciation Rate	Depreciation Exp.	Acc. Dep	Book Value year-end
	2015	$320,000	50.00%	$160,000	$160,000	$160,000
	2016	$160,000	50.00%	$80,000	$240,000	$80,000
	2017	$80,000	50.00%	$40,000	$280,000	$40,000
	2018	$40,000	12.50%	$5,000	$285,000	$35,000
3	Units of activity
	Year	Book Value year start	units of activity	Depreciation Exp.	Acc. Dep	Book Value year-end
	2015	$320,000	7,200	$102,600	$102,600	$217,400
	2016	$217,400	6,400	$91,200	$193,800	$126,200
	2017	$126,200	4,400	$62,700	$256,500	$63,500
	2018	$63,500	2,000	$28,500	$285,000	$35,000
			20,000
	Depreciation per hour = ($320,000 - $35,000)/20,000 = $14.25 per hour