Waldum Company purchased packaging equipment on January 5, 2012, for $135,000. The equipment was expected to have a useful life of three years

Waldum Company purchased packaging equipment on January 5, 2012, for $135,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $13,500. The equipment was used for 8,600 hours during 2012, 5,300 hours in 2013, and 4,100 hours in 2014.

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.