Question

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 $3,600. 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.
1) Find the force transmitted by the coupling between the nozzle and hose.
2) Indicate whether the coupling is in tension or compression.
3) Find the velocity of water flowing through the hose

Answer 1

To determine the depreciation expense for the three years ending December 31 using different methods, we will calculate the annual depreciation and then sum them up for the total depreciation expense.

Given information:

Purchase cost: $72,000

Useful life: 3 years or 18,000 operating hours

Residual value: $3,600

Year 1 usage: 7,200 hours

Year 2 usage: 5,400 hours

Year 3 usage: 5,400 hours

(a) Straight-line method:

Annual depreciation = (Purchase cost - Residual value) / Useful life

Annual depreciation = ($72,000 - $3,600) / 3 = $22,800

Total depreciation expense for 3 years = $22,800 × 3 = $68,400

(b) Units-of-activity method:

Depreciation per hour = (Purchase cost - Residual value) / Total estimated operating hours

Depreciation per hour = ($72,000 - $3,600) / 18,000 = $3.80

Year 1 depreciation expense = Depreciation per hour × Year 1 usage = $3.80 × 7,200 = $27,360

Year 2 depreciation expense = Depreciation per hour × Year 2 usage = $3.80 × 5,400 = $20,520

Year 3 depreciation expense = Depreciation per hour × Year 3 usage = $3.80 × 5,400 = $20,520

Total depreciation expense for 3 years = $27,360 + $20,520 + $20,520 = $68,400

(c) Double-declining-balance method:

Depreciation rate = (1 / Useful life) × 2

Depreciation rate = (1 / 3) × 2 = 0.67

Year 1 depreciation expense = (Purchase cost - Accumulated depreciation) × Depreciation rate

Year 1 depreciation expense = ($72,000 - $0) × 0.67 = $48,240

Year 2 depreciation expense = (Purchase cost - Accumulated depreciation) × Depreciation rate

Year 2 depreciation expense = ($72,000 - $48,240) × 0.67 = $15,830.40

Year 3 depreciation expense = (Purchase cost - Accumulated depreciation) × Depreciation rate

Year 3 depreciation expense = ($72,000 - $63,070.40) × 0.67 = $5,946.16

Total depreciation expense for 3 years = $48,240 + $15,830.40 + $5,946.16 = $70,016.56

In summary, the depreciation expense for the three years ending December 31 is as follows:

(a) Straight-line method: $68,400

(b) Units-of-activity method: $68,400

(c) Double-declining-balance method: $70,016.56

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