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Answer:
Instructions are listed below.
Explanation:
Giving the following information:
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.
1) Straight-line:
Annual depreciation= (original cost - salvage value)/estimated life (years)
Annual depreciation= (72,000 - 4,500)/3= $22,500
2) Units of activity:
Annual depreciation= [(original cost - salvage value)/useful life of production in units]*hours of use
Year 1= [(72,000 - 4,500)/18,000]*7600= 28,500
Year 2= 3.75*6,000= 22,500
Year 3= 4,400*3.75= 16,500
3) double declining:
Annual depreciation= 2*[(original cost - residual value)/estimated life (years)]
Year 1= [(72,000-4,500)/3]*2= 45,000
Year 2= (22,500/3)*2= 15,000
Year 3= (7,500/3)*2= 5,000
The total depreciation expense for the three years by each method are same: $67,500
Explanation:
Straight line depreciation is the method to recognize the carrying amount of a fixed asset evenly over its useful life
The units of activity method of depreciation is expressed in the total units that are expected to be produced or the asset's total activity during its life.
The double-declining-balance method is the asset value is depreciated at twice the rate it is done in the straight-line method
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.
1. Determine the amount of depreciation expense for the three years ending December 31, by
a) Depreciation by straight line method.
Depreciable cost = Acquisition cost - Salvage value
Depreciable cost = 72,000 - 4,500 = $67,500.
Annual depreciation expense = Depreciable cost/ Useful life.
Annual depreciation expense = 67,500/ 3 = $22,500.
Annual depreciation expense for year two = 45,000/2= $22,500.
Annual depreciation expense for year two=22,500/1= $22,500 .
b) Depreciation by units of activity method.
Depreciable cost = Acquisition cost - Salvage value
Depreciable cost = 72,000 - 4,500 = $67,500.
Depreciation per unit of activity = depreciable cost/Total useful units
Depreciation per unit of activity = 67,500/18,000 = $3.75 per hour.
Depreciation expense for Year 1 = 76,000 × 3.75 = $28,500.
Depreciation expense for Year 2 = 6000 × 3.75 = $22,500.
Depreciation expense for Year 3 = 4,400 × 3.75 = $16,500.
b) Depreciation by the double-declining-balance.
Depreciable cost = Acquisition cost - Salvage value.
Depreciable cost = 72,000 - 4,500 = $67,500.
Annual depreciation expense = 67,500/ 3 = $22,500.
Depreciation rate = (annual depreciation /depreciable cost) × 100
Depreciation rate = (22,500 /67,500) × 100 = 33.3%
Since it is double-declining we multiply the rate by 2 33.3% × 2= 66.6%.
Depreciation = Asset carrying value × depreciation rate.
Year 1 depreciation = 72,000 × 66.6%=$48,000.
Year 1 depreciation = 24,000 × 66.6%= $16,000.
Year 1 depreciation = 8,000 - 4,500 = $3,500.
Also determine the total depreciation expense for the three years by each method.
- The accumulated depreciation using the straight line method [tex]=Year 1+Year 2+Year 3 \\=22,500+22,500+22,500 =$67,500.[/tex]
- The accumulated depreciation using units-of-activity method [tex]=Year 1+Year 2+Year 3\\= 28,500+22,500+16,500=$67,500.[/tex]
- The accumulated depreciation using double-declining-balance.[tex]=Year 1+Year 2+Year 3 \\=48,000+16,000+3,500 =$67,500.[/tex]
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