Instructions
1. Determine the amount of depreciation expense for the years ended December 31, 2013, 2014, 2015, and 2016, 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 four 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 2013?
3. What method yields the most depreciation over the four-year life of the equipment?
Answer:
1. Depreciation Expense
a. Straight- b. Units-of- c. DoubleLine
Output Declining-Balance
Year Method Method Method
2013 $ 71,250 $102,600 $160,000
2014 71,250 91,200 80,000
2015 71,250 62,700 40,000
2016 71,250 28,500 5,000
Total $285,000 $285,000 $285,000
Calculations:
Straight-line method:
($320,000 – $35,000) ÷ 4 = $71,250 each year
Units-of-output method:
($320,000 – $35,000) ÷ 20,000 hours = $14.25 per hour
2013: 7,200 hours × $14.25 = $102,600
2014: 6,400 hours × $14.25 = $91,200
2015: 4,400 hours × $14.25 = $62,700
2016: 2,000 hours × $14.25 = $28,500
Double-declining-balance method:
2013: $320,000 × [(1/4) × 2] = $160,000
2014: ($320,000 – $160,000) × [(1/4) × 2] = $80,000
2015: ($320,000 – $160,000 – $80,000) × [(1/4) × 2] = $40,000
2016: ($320,000 – $160,000 – $80,000 – $40,000 – $35,000*) = $5,000
* Book value should not be reduced below the residual value of $35,000.
2. The double-declining-balance method yields the most depreciation expense in
2013 of $160,000.
3. Over the four-year life of the equipment, all three depreciation methods yield
the same total depreciation, $285,000, which is the cost of the equipment of
$320,000 less the residual value of $35,000.