Answer:
1.A
2014 Depreciation
Straight line method $26,667
Units-of-output $34,560
Double declining balance $57,933
2015 Depreciation
Straight line method $26,667
Units-of-output $26,840
Double declining balance $19,311
2016 Depreciation
Straight line method $26,667
Units-of-output $18,600
Double declining balance $6,437
1.B Total Depreciation in 3 years
Straight line method $80,000
Units-of-output $80,000
Double declining balance $83,681
2. Double declining balance yields the highest depreciation expense over the three-year life of an equipment
Explanation:
1.A In computing straight line method, the formula would be:
(cost of equipment - salvage value) / life of equipment
2014
(86,900 - 6,900) / 3 years = 26,667
2015
(86,900 - 6,900) / 3 years = 26,667
2016
(86,900 - 6,900) / 3 years = 26,667
TOTAL DEPRECIATION IN 3 YEAR LIFE OF EQUIPMENT = $80,001 ($26,667 + $26,667 + $26,667)
UNITS-OF-OUTPUT METHOD
Formula: (Cost of equipment - salvage value) / total operating hours of equipment x operating hours used for the year
2014
($86,900 - 6,900) / 20,000 x 8,640
($80,000 / 20,000) x 8,640
$4 per hour x 8,640 = $34,560
2015
$86,900 - 6,900) / 20,000 x 6,710
($80,000 / 20,000) x 6,710
$4 per hour x 6,710 = $26,840
2016
$86,900 - 6,900) / 20,000 x 4,650
($80,000 / 20,000) x 4,650
$4 per hour x 4,650 = $18,600
TOTAL DEPRECIATION IN 3 YEAR LIFE OF EQUIPMENT = $80,000 ($34,560 + $26,840 + $18,600)
DOUBLE DECLINING BALANCE
Formula: 100%/life of equipment x 2
*residual value will not be considered in this method of computation of depreciation expense.
2014
100% / 3 years x 2 = 66,67%
86,900 x 66.67% = $57,933
2015
100% / 3 years x 2 = 66,67%
$86,900 - $57,933 = $28,967
$28,967 x 66.67% = $19,311
2016
100% / 3 years x 2 = 66,67%
$86,900 - ($57,933 + $19,311) = $9,656
$9,656 x 66.67% = $6,437
TOTAL DEPRECIATION IN 3 YEAR LIFE OF EQUIPMENT = $83,681 ($57,933 + $19,311+ $6,437)
2. The method that yields most depreciation over the three-year life of an equipment is the DOUBLE DECLINING METHOD in a total amount of $83,681
