10 - 2 A

OBJ. 2 PR 10-2A Comparing three depreciation methods Dexter Industries purchased packaging equipment on January 8 for $72,000. The equip- ment 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. Instructions 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. The following columnar headings are suggested for recording the depreciation expense amounts: Year Straight- Line Method Depreciation Expense Units-of- Activity Method Double-Declining- Balance Method 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? Year Year 1 Year 2 Year 3 Totals Calculations: Straight-line method: (Cost Units-of-activity (Cost Year 1 Year 2 Year 3 a. Straight- Line - Residual Value) Year 3 method: - Residual Value) Rate Double-declining-balance method: Depreciable Balance Depreciation Expense b. Units-of- Activity Depreciable Balance 1 X Years Total Hours Hours Year 1 Year 2 Since depreciation cannot cause book value to fall below residual value: Rate Residual Value C. Double-Declining- Balance Yearly Depreciation Rate Yearly Depreciation Yearly Depreciation Yearly Depreciation The method that yields the most depreciation expense in Year 1 is the The method that yields the most total depreciation over the three years is the