Answer:
The amount of depreciation expense for the years ended December 31, 2015, 2016, 2017, and 2018, by;
(a) the straight-line method are; $71,250, $71,250, $71,250 and $71,250 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.
(b) the units-of-output method are; $102,600, $91,200,$62,700 and $28,500 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.
(c) the double-declining-balance method are; $160,000, $80,000,$40,000 and $5,000 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.
TOTAL depreciation expense for the four years by each method are;
a) the straight-line method is $285,000
(b) the units-of-output method is $285,000
(c) the double-declining-balance is $285,000
Explanation:
i. In applying the striaght-line method of depreciation, the residual value of $ 35,000 is deducted from the cost of the equipment to get $285,000. Then $285,000 is divided by the number of useful life of 4 years. This will yield to a uniform depreciation expenses of $71,250, $71,250, $71,250 and $71,250 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.
ii. Using units-of-output method, the rate par hour is first determined by $285,000/20,000=$14.25/1 hr.
2015 = $14.25X7,200 hrs=$102,600
2016 = $14.25X6,400 hrs=$91,200
2017 = $14.25X4,400 hrs=$62,700
2018 = $14.25X2000 hrs=$28,500
ii. Applying double-declining-balance method requires a more careful approach. first we have to calculate the depreciation rate. (1/4 X 100 =25%). then double the rate (25%X2=50%).
2015 = $320,000 X 50% =$160,000
2016 = $160,000 X 50%= $80,000
2017 = $80,000 X 50%=$40,000
2018 = $40,000 - $35,000= $5,000. Where $35,000 is the residual value in year 4.
