Ray Construction purchased a concrete mixer on August 1, 20x5. Company officials

Question

Ray Construction purchased a concrete mixer on August 1, 20x5. Company officials revealed the following information regarding this asset and its acquisition: purchase price = $126,000, Residual Value = 18,000, Estimated useful life = 10 years, Estimated service hours = 38,000, Estimated production in units = 500,000 yards, Actual hours used in 20x5 = 5,225, Actual 20x5 production = 77,000 yards. A) Calculate depreciation for 20x5 and 20x6 assuming the company uses the straight-line method. B) Calculate depreciation for 20x5 only using as service capacity: 1) Service hours and 2) Units of Production.

Explanation / Answer

Hi, Please find the answer as follows: Part A: 2005 = (126000 - 18000)/10 = 10800 * 5/12 = 4500 (assuming books are closed on 31st Dec every year) 2006 = 10800 Part B: Service hours =126000*5225/38000 = 17325 Units of production = 126000*77000/500000 = 19404 Thanks, Aman

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