Question

Dexter Industries purchased packaging equipment on January 8 for $422,400. The equipment was expected to have a useful life of four years, or 7,600 operating hours, and a residual value of $34,800. The equipment was used for 2,660 hours during Year 1, 1,596 hours in Year 2, 2,128 hours in Year 3, and 1,216 hours in Year 4.
Required:
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.

Answer 1

Answer:

Dexter Industries

Depreciation Expenses for the three years ending December 31:

     a) Straight line method b) Units-of-activity method c) Double-Declining

Year 1        $96,900                      $135,600                          $211,200

Year 2       $96,900                        $81,396                         $105,600

Year 3       $96,900                      $108,528                          $52,800

Explanation:

a) Data and Calculations:

Cost of equipment purchased on January 8 = $422,400

Expected useful life = 4 years or 7,600 operating hours

Residual value = $34,800

Depreciable amount = $387,600 ($422,400 - $34,800)

Straight-line Depreciation Expense per year = $96,900 ($387,600/4)

Units-of-activity method Depreciation Expenses:

Depreciation rate per hour = $51 ($387,600/7,600)

Period   Hours   Depreciation Expense

Year 1   2,660     $135,600 (2,660 * $51)

Year 2   1,596       $81,396 (1,596 * $51)

Year 3   2,128     $108,528 (2,128 * $51)

Year 4    1,216       $62,016 (1,216 * $51)

Double-declining-balance method:

Depreciation rate per year = 50% (100%/4 * 2)

Year 1 = $211,200 ($422,400 * 50%)

Year 2 = $105,600 ($211,200 * 50%)

Year 3 = $52,800 ($105,600 * 50%)

Year 4 = $18,000 ($52,800 - $34,800)