Problem 10-2 (Algorithmic) Compare three depreciation methods Newbirth Coatings

Question

Problem 10-2 (Algorithmic) Compare three depreciation methods Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $589,400. The equipment was expected to have a useful life of four years, or 10,400 operating hours, and a residual value of $48,600. The equipment was used for 4,000 hours during 2009, 3,200 hours in 2010, 1,900 hours in 2011, and 1,300 hours in 2012. Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. Do not round your intermediate calculations. Enter all amounts positive numbers. Depreciation Expense Year a. Straight-Line Method b. Units-of-Production Method c. Double-Declining-Balance Method 2009 $ $ $ 2010 $ $ $ 2011 $ $ $ 2012 $ $ $ Total $ $ $

Explanation / Answer

(a) Straight line depreciation method Depreciation per year = (589400 - 48600)/4 = $135200 Depreciation expenses for 2009,2010,2011,2012 = $135200 (b) Unit production method Year 2009: (589400 - 48600) x 4000/10400 = $208000 Year 2010: (589400 - 48600) x 3200/10400 = $166400 Year 2011: (589400 - 48600) x 1900/10400 = $98800 Year 2012: (589400 - 48600) x 1300/10400 = $67600 (c) the double declining balance method Depreciation rate based on straight line method = 100%/4 = 25% Double declining depreciation rate = 25% x 2 = 50% Year 2009: 589400 x 0.5 = $294700 Year 2010: $294700 x 0.5 = $147350 Year 2011: $147350 x 0.5 = $73675 Year 2012: 73675 - 48600 = $25075 Hope this helps!

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