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
- Determine the total depreciation expense for the three years by each method. What method yields the highest depreciation expense for Year 1?
What method yields the most depreciation over the three-year life of the equipment?
Full Answer Section
b) Units-of-Activity Method:
c) Double-Declining-Balance Method:
2. Total Depreciation Expense and Highest Depreciation in Year 1
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Straight-Line: $22,500/year * 3 years = $67,500
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Units-of-Activity: $28,500 + $22,500 + $16,500 = $67,500
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Double-Declining-Balance: $48,000 + $16,000 + $5,333.33 = $69,333.33
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Highest Depreciation in Year 1: Double-Declining-Balance method ($48,000)
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Highest Depreciation Over Three Years: Double-Declining-Balance method ($69,333.33)
3. Comparison of Costs
The Double-Declining-Balance method results in the highest depreciation expense in Year 1 and over the three-year life of the equipment. This method accelerates depreciation in the early years, which can be beneficial for tax purposes. However, it may not accurately reflect the actual usage pattern of the equipment.
4. Understanding and Appreciation of U.S. Expenditures
This analysis provides a deeper understanding of the significant financial resources dedicated to national security in the U.S. The costs associated with counterterrorism efforts are substantial and encompass a wide range of activities. While the need for robust security measures is undeniable, it is crucial to continually evaluate the effectiveness of these expenditures and ensure they are allocated efficiently and effectively.