Comparing three depreciation methodsDexter Industries purchased packaging equipment on January 8 for $108,000. The equipment was expected to have a useful life of three years, or 27,000 operating hours, and a residual value of $5,400. The equipment was used for 10,800 hours during Year 1, 8,100 hours in Year 2, and 8,100 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.

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Asked Dec 11, 2019
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Comparing three depreciation methods

Dexter Industries purchased packaging equipment on January 8 for $108,000. The equipment was expected to have a useful life of three years, or 27,000 operating hours, and a residual value of $5,400. The equipment was used for 10,800 hours during Year 1, 8,100 hours in Year 2, and 8,100 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.

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Expert Answer

Step 1

(a) Calculation of depreciation under straight-line method:

 

Results of the excel sheet is as follows:

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Straight-Line Depreciation Schedule Depreciation for the Year Book Value Depreciation (S) Depreciation Accumulated Closing Year Depreciation Book Value Expense rate 3 |=(B4-5400)/3 -D4 -D4 =SUM(D4:D6) -D4/B4 =C4 -C4 -D4 |-E4+DS -E4+D6 108000 -B4-D4 4 -F4 -F5 -B5-D5 -B6-D6 6 3 Straight-Line Depreciation Schedule Depreciation for the Year Book Value Depreciation Depreciation Accumulated (S) Closing Depreciation Book Value Year Expense rate 108000 73800 39600 32% 73800 34200 34200 1. 34200 68400 32% 39600 68400 3 32% 34200 5400 102600

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Step 2

(b) Calculation of depreciation under the units-of-activity method:

 

Resu...

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A Units-of-activity Depreciation Schedule Depreciation for the Year Equipment 9. 10 Depreciation Accumulated Closing Depreciation Book Value |=B12-D12 Book Value (S) Year hours Expense =B12*(C12/C15) =D12 |=B12*(C13/C15) =E12+D13 -B12*(C14/C15) -E12+D14 11 =(108000-5400) 10800 =(108000-5400) 8100 (108000-5400) 8100 12 1 13 2 =B13-D13 =B14-D14 14 3 |=C12+C13+C14 =SUM(D12:D14) 15 B Units-of-activity Depreciation Schedule Depreciation for the Year 10 Book Value Equipment (S) 102600 Depreciation Accumulated Expense 41040 Closing Year Depreciation Book Value hours 11 10800 8100 8100 27000 12 1 41040 61560 102600 102600 30780 71820 71820 13 30780 71820 71820 14 102600| 15

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