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 $4,500. The equipment was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3.

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.

The calculations are shown below

Explanation:

The computations are shown below:

a) Straight-line method:

= (Original cost - residual value) ÷ (useful life)

= ($72,000 - 4,500) ÷ (3 years)

= ($67,500) ÷ (3 years)  

= $22,500

In this method, the depreciation is same for all the remaining useful life

So for year 1, year 2 and year 3,the depreciation expense for $22,500 each is charged every year

(b) Units-of-production method:

= (Original cost - residual value) ÷ (estimated production hours)  

= ($72,000 - 4,500) ÷ (18,000)

= ($67,500) ÷ (18,000)  

= $3.75

For first year, it would be

= Production hours in first year × depreciation per hours

= 7,600 hours × $3.75

= $28,500

Now for the second year, it would be  

= Production hours in second year × depreciation per hours

= 6,000 hours × $3.75

= $22,500

And for third year, it would be

= Production hours in third year × depreciation per hours

= 4,400 hours × $3.75

= $16,500  

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= One ÷ useful life

= 100 ÷ 3

= 33.33%

Now the rate is double So, 66.67%

In year 1, the original cost is $72,000, so the depreciation is $48,000 after applying the 66.67% depreciation rate

And, in year 2, the depreciation expense is

= ($72,000 - $48,000) × 66.67%

= $16,000

And, for year 3, it would be

= $67,500 - $64,000

= $3,500

The $64,000 is come from

= $48,000 + $16,000