A company paid $510,000 to purchase equipment and $16,000 to have the equipment

Question

A company paid $510,000 to purchase equipment and $16,000 to have the equipment delivered to and installed in the company's production facilities. The equipment is expected to be used a total of 29,000 hours throughout its estimated useful life of six years. The estimated residual value of the equipment is $6,000. The company began using the equipment on May 1, 2016. The company has an October 31, 2016 year-end. It used the equipment for a total of 12,200 hours between May 1 and October 31, 2016. Using the units-of- production method, what amount of depreciation expense would the company report in the income statement prepared for the year-ended October 31, 2016?

Explanation / Answer

depreciation charged =$218746

cost of machine=(510000+16000)=526000

less residual value=6000

net cost=520000

total hour life=29000

so hourly depreciation=520000/29000

=17.93(app)

during six months perioed machine worked=12200 hours

so depreciation=12200*17.93

=$218746

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