Waylander Coatings Company purchased waterproofing equipment on January 6, 2013, for $320,000. The equipment was expected to have a useful life

Waylander Coatings Company purchased waterproofing equipment on January 6, 2013, for $320,000. The equipment was expected to have a useful life of four years, or 20,000 operating hours, and a residual value of $35,000. The equipment was used for 7,200 hours during 2013, 6,400 hours in 2014, 4,400 hours in 2015, and 2,000 hours in 2016.


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.