Question

On January​ 2, 2019, Konrad Corporation acquired equipment for $ 900 comma 000. The estimated life of the equipment is 5 years or 58 comma 000 hours. The estimated residual value is $ 30 comma 000. If Konrad Corporation uses the units of production method of​ depreciation, what will be the debit to Depreciation Expense for the year ended December​ 31, 2020, assuming that during this​ period, the asset was used 8 comma 000 ​hours?

Answer 1

The debit to Depreciation Expense for the year ended December​ 31, 2020 is $120,000

Step-by-step explanation:

For computing the depreciation expense for 8,000 hours, first we have to compute the depreciation expense per hour which is shown below:

= (Purchase price of equipment - residual value) ÷ Number of hours

= ($900,000 - $30,000) ÷ 58,000 hours

= $870,000 ÷ 58,000 hours

= $15 per hour

For 8,000 hours, the Depreciation Expense would be

= Per hour rate × number of hours used

= $15 × 8,000 hours

= $120,000