Dexter Industries purchased packaging equipment on January 8

Dexter Industries purchased packaging equipment on January 8 for $116,600. The equipment was expected to have a useful life of three years, or 20,000 operating hours, and a residual value of $6,600. The equipment was used for 8,700 hours during Year 1, 7,380 hours in Year 2, and 3,920 hours in Year 3.

	Required:
1.	Determine the amount of depreciation expense for the three years ended December 31 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 STRAIGHT-LINE ONLY, round the first two years to the nearest whole dollar, then round the third year as necessary. For DECLINING BALANCE ONLY, round the multiplier to five decimal places. Then round the answer for each year to the nearest whole dollar.)
2.	What method yields the highest depreciation expense for Year 1?
3.	What method yields the most depreciation over the three-year life of the equipment?

Solution

SLM Cost of Equipment 116600 Less: Salvage value 6,600 Depreciable amount 110,000 Divide: Life 3 Annual depreciation 36,667 Year Depreciation Accumulated Book Value Expense Depreciation 1 36667 36,667 79,933 2 36667 73,334 43,266 3 36667 110000 6,600 Unit of Production: Cost of Equipment 116600 Less: Salvage value 6600 Depreciable amount 110000 Divide: life in hours 20000 Depreciation per hour 5.5 Depreciation: Year1 (8700*5.5) 47850 Year2 (7380*5.5) 40590 Year3 (3920*5.5) 21560 Year Depreciation Accumulated Book Value Expense Depreciation 1 47850 47,850 68,750 2 40590 88,440 28,160 3 21560 110,000 6,600 DDB: Rate under SLM: (100/3)= 33.33% Rate under DDB: 66.67% Year Depreciation Accumulated Book Value Expense Depreciation 1 77737 77,737 38,863 2 25909 103,646 12,954 3 6354 110,000 6,600 Req b: Double Declining balance method gives the highest depreciation in Year-1 Req c: All the above methods give Same depreciation over the total period of 3 years