Question

Super Saver Groceries purchased store equipment for $31,000. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $4,000. During the 10-year period, the company expects to use the equipment for a total of 10,000 hours. Super Saver used the equipment for 1,500 hours the first year.Required:Calculate depreciation expense of the equipment for the first year, using each of the following methods. (Do not round your intermediate calculations.)

Answer 1

straight line method = $2,700

Using Double declining rate = $6,200

Activity based = $4,050

Step-by-step explanation:

Data provided:

Purchasing cost of the store equipment = $31,000

Service life = 10 years

Salvage value = $4,000

Useful life = 10,000 hours

Number of hours equipment used for the first year = 1,500

Now,

Depreciation using the straight line method

Annual depreciation =
`\frac{\textup{(Cost - Salvage value)}}{\textup{Useful life}}`

=
`\frac{\textup{ (31,000-4000)}}{\textup{10}}`

= $2,700

Using Double declining rate

Double declining rate =
`\frac{\textup{1}}{\textup{useful life}}*2`

`2*\frac{\textup{1}}{\textup{10}}*100\%`

= 2 × 0.1 × 100%

= 20%

Therefore,

Depreciation for the first year = $31,000 × 20%

= $6,200

Activity based

=
`\frac{\textup{(Cost - Salvage value)}}{\textup{Useful life in hours}}*\textup{Number of hours used}`

=
`\frac{\textup{(31,000-4,000)}}{\textup{10,000}}*\textup{1,500}`

= $4050