Comparing Three Depreciation Methods Dexter Industries purch

Comparing Three Depreciation Methods

Dexter Industries purchased packaging equipment on January 8 for $310,600. The equipment was expected to have a useful life of three years, or 7,500 operating hours, and a residual value of $25,600. The equipment was used for 3,000 hours during Year 1, 2,325 hours in Year 2, and 2,175 hours in Year 3.

Required:

1. Determine the amount of depreciation expense for the three years ending December 31, Year 1, Year 2, Year 3, 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 three years by each method.

Note: For all methods, round the answer for each year to the nearest whole dollar.

2. What method yields the highest depreciation expense for Year 1?
All three depreciation methods

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

Solution

1.

Double declining balance method.

Straight line depreciation rate = 1/3 = 33.33%

Depreciation rate double decling balance method=33.33 % x 2 = 66.66

Given that the salvage value is 25600. But the opening balance of the third year is 34525. Hence the depreciation for the third year restricted to 8925 (34525-25600)

2. Double declining balance method

3. The three methods give same depreciation ; 285000