Question

Quality Rehab Care purchased diagnostic equipment for its new clinic. The equipment costs $296,800 and has an estimated life of 8000 hours and no salvage value. Use the units-of-production method of depreciation to find the book value at the end of the third year, given the following use information: Year 1: 1750 hours; Year 2: 1420 hours; Year 3: 1940 hours.

Answer 1

the book value at the end of the third year is $107,359.

Explanation:

First, let's calculate the depreciation rate per hour:

Depreciation Rate = (Cost - Salvage Value) / Estimated Total Hours

Since there is no salvage value, the equation simplifies to:

Depreciation Rate = Cost / Estimated Total Hours

Depreciation Rate = $296,800 / 8000 hours

Depreciation Rate = $37.10 per hour

Next, let's calculate the depreciation expense for each year:

Year 1: Depreciation Expense = Depreciation Rate * Hours of Use

Year 1: Depreciation Expense = $37.10 * 1750 hours

Year 1: Depreciation Expense = $64,925

Year 2: Depreciation Expense = Depreciation Rate * Hours of Use

Year 2: Depreciation Expense = $37.10 * 1420 hours

Year 2: Depreciation Expense = $52,682

Year 3: Depreciation Expense = Depreciation Rate * Hours of Use

Year 3: Depreciation Expense = $37.10 * 1940 hours

Year 3: Depreciation Expense = $71,834

To find the book value at the end of the third year, we subtract the accumulated depreciation from the initial cost of the equipment:

Accumulated Depreciation = Depreciation Expense Year 1 + Depreciation Expense Year 2 + Depreciation Expense Year 3

Accumulated Depreciation = $64,925 + $52,682 + $71,834

Accumulated Depreciation = $189,441

Book Value at the end of Year 3 = Cost - Accumulated Depreciation

Book Value at the end of Year 3 = $296,800 - $189,441

Book Value at the end of Year 3 = $107,359