Dexter Industries purchased packaging equipment on January 8 for $485,200. The equipment was expected to have a useful life of four years, or 8,400 operating hours, and a residual value of $40,000. The equipment was used for 2,940 hours during Year 1, 1,764 hours in Year 2, 2,352 hours in Year 3, and 1,344 hours in Year 4. 1. Determine the amount of depreciation expense for the four 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 four years by each method. Round the answer for each year to the nearest whole dollar. 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 Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Dexter Industries purchased packaging equipment on January 8 for $485,200. The equipment was expected to have a useful life of four years, or 8,400 operating hours, and a residual value of $40,000. The equipment was used for 2,940 hours during Year 1, 1,764 hours in Year 2, 2,352 hours in Year 3, and 1,344 hours in Year 4.
1. Determine the amount of
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?
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