Instructions
1. Determine the amount of depreciation expense for the years ended December 31, 2012, 2013, and 2014, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:
Depreciation Expense
Year
StraightLine
Method
Units-ofOutput
Method
Double-DecliningBalance
Method
2. What method yields the highest depreciation expense for 2012?
3. What method yields the most depreciation over the three-year life of the equipment?
Answer:
1. Depreciation Expense
a. Straight- b. Units-of- c. DoubleLine
Output Declining-Balance
Year Method Method Method
2012 $ 40,500 $ 58,050 $ 90,000
2013 40,500 35,775 30,000
2014 40,500 27,675 1,500
Total $121,500 $121,500 $121,500
Calculations:
Straight-line method:
($135,000 – $13,500) ÷ 3 = $40,500 each year
Units-of-output method:
($135,000 – $13,500) ÷ 18,000 hours = $6.75 per hour
2012: 8,600 hours × $6.75 = $58,050
2013: 5,300 hours × $6.75 = $35,775
2014: 4,100 hours × $6.75 = $27,675
Double-declining-balance method:
2012: $135,000 × 2/3 = $90,000
2013: ($135,000 – $90,000) × 2/3 = $30,000
2014: ($135,000 – $90,000 – $30,000 – $13,500*) = $1,500
* Book value should not be reduced below the residual value of $13,500.
2. The double-declining-balance method yields the most depreciation expense in
2012 of $90,000.
3. Over the three-year life of the equipment, all three depreciation methods yield
the same total depreciation, $121,500, which is the cost of the equipment of
$135,000 less the residual value of $13,500.