Complete this problem on depreciation Show as much work as possible Cost of the

Question

Complete this problem on depreciation Show as much work as possible Cost of the equipment is $21,000 Salvage (residual) value is 1,000 Life of the machine in years is 4 years Life of the machine in hours is 100,000 hours A. Calculate Straight line Depreciation Expense for years 1 and 2 B. Calculate Double Declining Depreciation Expense for years 1 and 2 C. Caclulate depreciation Expense using Units of production for year 1 (10,000 hours were used) and year 2 (15,000 hours were used) Complete this problem on depreciation Show as much work as possible Cost of the equipment is $21,000 Salvage (residual) value is 1,000 Life of the machine in years is 4 years Life of the machine in hours is 100,000 hours A. Calculate Straight line Depreciation Expense for years 1 and 2 B. Calculate Double Declining Depreciation Expense for years 1 and 2 C. Caclulate depreciation Expense using Units of production for year 1 (10,000 hours were used) and year 2 (15,000 hours were used)

Explanation / Answer

A) Straight line depreciation

= (cost – salvage value) / life of the machine

= ($21000 - $1000) / 4 years

= $5000 per year.

Depreciation expense for year 1 = $5000

Depreciation Expense for year 2 = $ 5000

B)

Double declining rate of depreciation = (1/useful life) * 2 = (1/4)*2 = 50%

Depreciation for year 1 = $21000 x 50% = $10500

Depreciation for year 2 = ($21000 - $10500) * 50% = $5250

C)

Life of the machine in hours is 100,000 hours

Rate of depreciation per hour

= ($21000 - $1000) / 100000 hours

= $ 0.20 per hour

Depreciation expense for year 1 = rate of depreciation x number of hours used = $0.20 per hour x 10000 hours = $2000

Depreciation expense for year 2 = rate of depreciation x number of hours used = $0.20 per hour x 15000 hours = $3000

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