Question

The Barnett Clinic purchased a new surgical laser for $80,000. The estimated salvage value is $5,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,200 hours in year 2; 2,400 hours in year 3; 1,800 hours in year 4; 2,000 hours in year 5. Compute the annual depreciation for each of the five years under the following methods for the purchased surgical laser.

a) Straight-line method
b) Units-of-activity method

Answer 1

The annual depreciation for each of the five years can be calculated using the straight-line and units-of-activity methods.

Step-by-step explanation:

a) To calculate the annual depreciation using the straight-line method, we need to find the depreciable cost of the surgical laser, which is the purchase cost minus the salvage value. In this case, the depreciable cost is $75,000 ($80,000 - $5,000). To find the annual depreciation, divide the depreciable cost by the useful life of the laser. The annual depreciation is $15,000 ($75,000 / 5 years).

b) To calculate the annual depreciation using the units-of-activity method, we need to find the depreciation per hour. The depreciation per hour is determined by dividing the depreciable cost by the total expected hours of use. In this case, the depreciation per hour is $7.50 ($75,000 / 10,000 hours). To find the annual depreciation, multiply the depreciation per hour by the actual hours of use in each year. The annual depreciation for each year is as follows:

- Year 1: $12,000 ($7.50 x 1,600 hours)

- Year 2: $16,500 ($7.50 x 2,200 hours)

- Year 3: $18,000 ($7.50 x 2,400 hours)

- Year 4: $13,500 ($7.50 x 1,800 hours)

- Year 5: $15,000 ($7.50 x 2,000 hours)