Waylander Coatings Company purchased waterproofing equipment on January 6, 2015, 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 2015, 6,400 hours in 2016, 4,400 hours in 2017, and 2,000 hours in 2018. Instructions Determine the amount of depreciation expense for the years ended December 31, 2015, 2016, 2017, and 2018, 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:

The amount of depreciation expense for the years ended December 31, 2015, 2016, 2017, and 2018, by;

(a) the straight-line method are; $71,250, $71,250, $71,250 and $71,250 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.

(b) the units-of-output method are; $102,600, $91,200,$62,700 and $28,500 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.

(c) the double-declining-balance method are; $160,000, $80,000,$40,000 and $5,000 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.

TOTAL depreciation expense for the four years by each method are;

a) the straight-line method is $285,000

(b) the units-of-output method is $285,000

(c) the double-declining-balance is $285,000

Explanation:

i. In applying the striaght-line method of depreciation, the residual value of $ 35,000 is deducted from the cost of the equipment to get $285,000. Then $285,000 is divided by the number of useful life of 4 years. This will yield to a uniform depreciation expenses of $71,250, $71,250, $71,250 and $71,250 for years ended December 31, 2015, 2016, 2017, and 2018 respectively.

ii. Using units-of-output method, the rate par hour is first determined by $285,000/20,000=$14.25/1 hr.

2015 = $14.25X7,200 hrs=$102,600

2016 = $14.25X6,400 hrs=$91,200

2017 = $14.25X4,400 hrs=$62,700

2018 = $14.25X2000 hrs=$28,500

ii. Applying double-declining-balance method requires a more careful approach. first we have to calculate the depreciation rate. (1/4 X 100 = 25%). then double the rate (25%X2=50%).

2015 = $320,000 X 50% = $160,000

2016 = $160,000 X 50% = $80,000

2017 = $80,000 X 50%=$40,000

2018 = $40,000 - $35,000 = $5,000. Where $35,000 is the residual value in year 4.