Question

Need help badly, i'm up to my neck in make-up work due being sick. I need to finish this today as my semester ends today. Anybody please help! I would really appreciate it. Thank you so very much. 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. (Note: 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?

Answer 1

Answer: Depreciation expense under straight-line method is $22,500 for each year.

Depreciation expense for year 1, year 2 and year 3 is $28,500, $22,500 and $16,500 respectively under units of activity method.

Depreciation expense for year 1, year 2 and year 3 is $48,000, $16,000 and $3,500 respectively under double declining balance method.

What method yields the highest depreciation expense for Year 1?

Ans: Double-declining-balance method

What method yields the most depreciation over the three-year life of the equipment?

Ans : Straight-line method , Units-of-output method , and Double-declining-balance method

Answer 2

1.a) Under the straight line method depreciation expense is as follows;

-Year 1 = $22,500.

-Year 2 =$ 22,500.

-Year 3 = $22,500.

b) Under the units-of-activity method depreciation expense is as follows;

-Year 1 = $28,500.

-Year 2 =$ 22,500.

-Year 3 = $16,500.

c) Under the double-declining-balance method depreciation expense is as follows;

-Year 1 = $48,000.

-Year 2 = $16,000.

-Year 3 = $3,500.

The total depreciation expense for the three years by each method is as follows;

- Units-of-activity method =Year 1+Year 2+Year 3

= 28,500+22,500+16,500=$67,500.

- Straight line method =Year 1+Year 2+Year 3

=22,500+22,500+22,500 =$67,500.

-The double-declining-balance =Year 1+Year 2+Year 3

=48,000+16,000+3,500 =$67,500.

2.The method that yields the highest depreciation expense for Year 1 is the double-declining-balance depreciation method,it yields $48,000. The units-of-activity method and the straight line method yields $28,500 and $22,500 respectively.

3. No method yields the most depreciation over the three-year life of the equipment. All the methods yield $67,500 at the end of the 3 years of useful life.

Step-by-step explanation:

1. a) Depreciation by straight line method.

Depreciable cost = Acquisition cost - Salvage value

Depreciable cost = 72,000 - 4,500 = $67,500.

Annual depreciation expense = Depreciable cost/ Useful life.

Annual depreciation expense = 67,500/ 3 = $22,500.

Annual depreciation expense for year two = 45,000/2= $22,500.

Annual depreciation expense for year two=22,500/1= $22,500 .

b) Depreciation by units of activity method.

Depreciable cost = Acquisition cost - Salvage value

Depreciable cost = 72,000 - 4,500 = $67,500.

Depreciation per unit of activity = depreciable cost/Total useful units

Depreciation per unit of activity = 67,500/18,000 = $3.75 per hour.

Depreciation expense for Year 1 = 76,000 × 3.75 = $28,500.

Depreciation expense for Year 2 = 6000 × 3.75 = $22,500.

Depreciation expense for Year 3 = 4,400 × 3.75 = $16,500.

b) Depreciation by the double-declining-balance.

Depreciable cost = Acquisition cost - Salvage value.

Depreciable cost = 72,000 - 4,500 = $67,500.

Annual depreciation expense = 67,500/ 3 = $22,500.

Depreciation rate = (annual depreciation /depreciable cost) × 100

Depreciation rate = (22,500 /67,500) × 100 = 33.333333%

Since it is double-declining we multiply the rate by 2 33.333333% × 2= 66.66667%.

Depreciation = Asset carrying value × depreciation rate.

Year 1 depreciation = 72,000 × 66.66667%=$48,000.

Year 1 depreciation = 24,000 × 66.66667%= $16,000.

Year 1 depreciation = 8,000 - 4,500 = $3,500.

2. Determining the method that yields the highest depreciation expense for Year 1.

The method that yields the highest depreciation expense for Year 1 is the double-declining-balance depreciation method,it yields $48,000. The units-of-activity method and the straight line method yields $28,500 and $22,500 respectively.

3. Determining accumulated depreciation using the 3 methods.

The accumulated depreciation using the straight line method

=Year 1+Year 2+Year 3 .

=22,500+22,500+22,500 =$67,500.

The accumulated depreciation using units-of-activity method

=Year 1+Year 2+Year 3 .

= 28,500+22,500+16,500=$67,500.

The accumulated depreciation using double-declining-balance.

=Year 1+Year 2+Year 3 .

=48,000+16,000+3,500 =$67,500.

No method yields the most depreciation over the three-year life of the equipment than the other. All the methods yield $67,500 at the end of the 3 years of useful life.