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1 October, 19:59

Comparing three depreciation methods Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3. Required: 1. 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. Also determine the total depreciation expense for the three years by each method. Round the final answers for each year to the nearest whole dollar.

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  1. 1 October, 20:21
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    a) $22,500

    b) 3.75 per unit

    c) 66.67%

    Explanation:

    As per the data given in the question,

    Calculation for amount of depreciation:

    Straight line Depreciation = ($72,000 - $4,500) : 3

    =$22,500

    Unit of production method = ($72,000 - $4,500) : 18,000

    = $3.75 per unit

    Double decline rate = 100:3

    = 33.33%*2

    = 66.67%

    Depreciation Expense

    Year Straight line Unit of production Double decline

    year 1 $22,500 7,600*$3.75 = $28,500 $72,000*66.67%=$48,000

    year 2 $22,500 6,000*$3.75 = $22,500 $24,000*66.67%=$16,000

    year 3 $22,500 4,400*$3.75 = $16,500 ($67,500-$64,000) = $3,500

    Total $67,500 $67,500 $67,500
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