Comparing three depreciation methods dexter industries...

Comparing Three Depreciation Methods Dexter Industries purchased packaging equipment on January 8 for $326,200. The equipment was expected to have a useful life of four years, or 6,800 operating hours, and a residual value of $27,000. The equipment was used for 2,380 hours during Year 1, 1,428 hours in Year 2, 1,904 hours in Year 3, and 1,088 hours in Year 4. 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 four years by each method. Round the answer for each year to the nearest whole dollar. Depreciation Expense Year Year 1 Year 2 Year 3 Year 4 Total

Transcript

00:01 So for this problem, we need to determine depreciation expense for all four years for an asset using three different methods.

00:09 So let's jump into the data we have.

00:13 So we've cost is $326 ,200.

00:24 It has a four -year life and an expected 6800 hours.

00:37 It also has a salvage value of 27 ,000.

00:48 Okay, so straight line depreciation is the simplest.

00:52 So we'll start with that.

00:54 You take the cost, so 326, 200 minus salvage value, which is 27 ,000, and divided by the number of years for its useful life, and that would make the depreciation expense, the same every year and that's 74 ,800 and you'd make that every year and then at year four your ending book value should be the salvage value of 27 ,000 so for b the next one is activity based depreciation so you need to determine a rate for this and that is similar to straight line you take the cost 32.

01:48 6 -200 minus 27 ,000 and divide it by not four but the number of hours is expected to use so 6800 and that gives you $44 per hour so this rate you multiply then by each year's number of hours so like we're going to do year 1 to and four.

02:24 Year one had 2380 hours.

02:31 Year two had 1428, year three, year three at 1904, and year four had 1 ,088.

02:48 So we multiply each of these by our rate we just determined, which is 44, and this is going to get our depreciation expense.

02:59 And then you just have to double check the last year to make sure your book value hits 27 ,000.

03:09 So in this case, your depreciation.

03:12 The first year is 104, 720.

03:19 The second year is 62, 832.

03:28 The third year is 83 -776.

03:36 And the fourth year is 47 -82, 872.

03:41 872, sorry.

03:47 So year four is 47872.

03:53 And this is depreciation expense.