Waylander Coatings Company purchased waterproofing equipment on January 6 for $3

ID: 2547918 • Letter: W

Question

Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000. The equipment was expected to have a useful life of four years, or 20,000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during Year 1, 6,400 hours in Year 2, 4,400 hours in Year 3, and 2,000 hours in Year 4.

Required:

1. Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, 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.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Depreciation Expense Year Straight-Line Method Units-of-Activity Method Double-Declining-Balance Method Year 1 $ $ $ Year 2 $ $ $ Year 3 $ $ $ Year 4 $ $ $ Total $ $

Explanation / Answer

1.Depreciation Under Stright Line Method

Depreciation = ( Cost of the Equipment – Salvage Value ) / Usefull Life

= ( $ 320000 - $ 35000 ) /4 Years

= $ 71250 year

Depreciation Year 1 = $ 71250

Depreciation Year 2 = $ 71250

Depreciation Year 3 = $ 71250

Depreciation Year 4 = $ 71250

2.Depreciation Under Units of Production Method

Depreciation = [(Cost of Equipment - Residual Value) / Estimated Total Hours] x Actual Hours

Depreciation Year 1 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 7200 Hours

= $ 102600

Depreciation Year 2 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 6400 Hours

= $ 91200

Depreciation Year 3 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 4400 Hours

= $ 62700

Depreciation Year 4 = [ ($ 320000 - $ 35000) / 20000 Hours ] x 2000 Hours

= $ 28500

Depreciation Year 1 = $ 102600

Depreciation Year 2 = $ 91200

Depreciation Year 3 = $ 62700

Depreciation Year 4 = $ 28500

3.Depreciation Under DDB Method

Year

Book Value Begining

Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining

Net Book Value End

$ 320000

$ 160000

$ 80000

$ 40000

$ 5000 (b/f)

$ 35000

***Stright Line Rate = 1/4 = 25%

Depreciation Year 1 = $ 160000

Depreciation Year 2 = $ 80000

Depreciation Year 3 = $ 40000

Depreciation Year 4 = $ 5000