On April 22, 2016, Sandstone Enterprises purchased equipment for $129,200. The company expects to use the equipment for 12,000 working hours during its four-year life and that it will have a residual value of $14,000. Sandstone has a December 31 year end and pro-rates depreciation to the nearest month. The actual machine usage was: 1,900 hours in 2016; 2,800 hours in 2017; 3,700 hours in 2018; 2,700 hours in 2019; and 1,100 hours in 2020.
Instructions
(a) Prepare a depreciation schedule for the life of the asset under each of the following methods:
1. straight-line,
2. Double diminishing-balance, and
3. Units-of-production.
(b) Which method results in the lowest profit over the life of the asset?
(c) Which method results in the least cash used for depreciation over the life of the asset?