At the beginning of last year, Brentwood Corporation purchased a piece of heavy

Question

At the beginning of last year, Brentwood Corporation purchased a piece of heavy equipment for $88,000. The equipment has a life of five years or 100,000 hours. The estimated residual value is $8,000. Bremond used the equipment for 19,000 hours last year and 22,000 hours this year. Depreciation expense for year two using double-declining-balance (DDB) and units-of-production (UOP) methods would be as follows (Carry all rates to two decimal places, .xX) DDB UOP OA $19,200 $19,360 OB. $19,200 $17,600 OC. $21,120 $19,360 D. $21,120 $17,600

Explanation / Answer

C.$21,120 , $17,600

Depreciation percentage under straigthline

= (($88,000 -$8,000)/5) / 80,000 = 20%

Double declining depreciation rate = 2 ×20% = 40%

1st year depreciation = $88,000*40% = $35,200

2nd year depreciation = ($88,000 - $35,200) *40% = $21,120

Unit of production method = ( cost - salvage value ) / total hours × hours used

Depreciation = ($88,000-$8,000)/ 100,000 *22,000 = $17,600

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