that the transactions above are the only transactions affecting the allowance fo
ID: 2398881 • Letter: T
Question
that the transactions above are the only transactions affecting the allowance for ugcollectible accounts during the year gAnart eivsh Cayh 2) 3. A company purchased an equipment system for $325,000 on March 22. The company expects the equipment to last for eight years or 60,000 hours of operation, with an estimated salvage value of $25,000. During the first year, the equipment was in operation for 8,000 hours, while in the second year, the equipment was in operation for 8,700 hours. Compute the depreciation expense relating to the equipment for Year 1 and Year 2 using the following depreciation methods: a. Straight-line, b. Double-declining-balance c. Units-of-production, b.Mat. 22. C. a.Explanation / Answer
NOTE: It is assumed that asset was put to use in the beginning of year 1, alternatively result can also be calculated using proportionate method.
a. Straight line method: (original cost - salvage value) / life of the equipment
Computation = (325,000 - 25,000) / 8 = $37,500 each year i.e. @12.5% pa
Year 1: $37,500
Year 2: $37,500
b. Double - declining balance: Double rate of depriciation from straight line method i.e. 12.5%*2 = 25% pa
Year 1: $325,000*25% = $81,250
Year 2: ($325,000 - $81,250) *25% = $60,937.50
c. Units of production: (original cost - salvage value) / life in hours
Year 1: $300,000 * 8000 / 60,000 = $40,000
Year 2: $300,000 * 8,700 / 60,000 = $43,500
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