Dexter Industries purchased packaging equipment on January 8 for $135,000. 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.

Straight line depreciation method : $43,200, $43,200, $43,200

Unit of activity deprecation method = $51,840, $38,880, $38,880

Double declining method = $90,000, $30,000, $10,000

Total depreciation expense

Straight line depreciation and unit of activity method = $129,600

Double declining method = $130,000

Explanation:

Depreciation is a method used in expensing the cost of an asset.

the straight-line method = (Cost of asset - Salvage value) / useful life

( $135,000 - $5,400) / 3 = $43,200

The straight line depreciation method allocates the same deprecation expense for each year of the useful life of the asset. So, the depreciation expense for the 3 years is $43,200.

Total depreciation expense = $43,200 × 3 = $129,600

the units-of-activity method =( hours used in year / total hours of the machine) x (Cost of asset - Salvage value)

Deprecation expense in the first year =

( $135,000 - $5,400) × (10,800 / 27,000) =

$129,600 × 0.4 = $51,840

Deprecation expense in the second year

( $135,000 - $5,400) × (8,100 / 27,000) = $129,600 × 0.3 = $38,880

Deprecation expense in the third year

( $135,000 - $5,400) × (8,100 / 27,000) = $129,600 × 0.3 = $38,880

Total depreciation expense = $129,600

Double declining method = depreciation factor × cost of the asset

Depreciation factor = 2 x (1/useful life)

Deprecation factor = 2 / 3 = 0.666667

Depreciation in the first year =

0.666667 x $135,000 = $90,000

Book value = $135,000 - $90,000 = $45,000

Deprecation expense in the second year =

0.666667 x $45,000 = $30,000

Book value = $45,000 - $30,000 = $15,000

Deprecation expense in the third year =

0.666667 x $15,000 = $10,000

Total depreciation expense = $130,000

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