1. 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 7,200 hours during Year 1, 5,400 hours in Year 2, and 5,400 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.

   Depreciation Expense
   Year	Straight-Line Method			Units-of-Activity Method			Double-Declining-Balance Method
   Year 1		$			$			$
   Year 2		$			$			$
   Year 3		$			$			$
   Total		$			$			$

   2. What method yields the highest depreciation expense for Year 1? Double-declining-balance method

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

   Feedback

   Asset cost minus residual value equals depreciable cost. Sum the yearly depreciation to determine total depreciation.

   Annual units-of-activity depreciation allocates the cost of the asset equally over the units produced (hours).

   The double-declining-balance rate is two times the straight-line rate. Book value is the asset cost minus accumulated depreciation. In the first year, the balance in the accumulated depreciation account is zero.

   Compare the total depreciation for all methods over the time period. Recall that straight-line method allocates the depreciable cost of the asset equally over the period of use, while double-declining-balance method is an accelerated method.