Question

Use the following information for the quick studies below. Equipment costing 38,400 with a 8-year useful life and an estimated 6,400 salvage value is acquired and started operating on January 1. The equipment is estimated to produce 4,000 units of product during its life. It produced 600 units in the first year. Compute depreciation for the first year under straight-line, units-of-production, and double-declining-balance.

Answer 1

To calculate depreciation for the first year under different methods, we need to determine the depreciable cost of the equipment and apply the relevant depreciation methods. The straight-line method allocates the same amount of depreciation each year, the units-of-production method allocates based on the number of units produced, and the double-declining-balance method allocates more depreciation in the earlier years.

Step-by-step explanation:

To calculate depreciation under different methods, we need to first determine the depreciable cost of the equipment. The depreciable cost is the initial cost minus the salvage value. In this case, the depreciable cost would be $38,400 - $6,400 = $32,000.

1. Straight-line method: Depreciation is allocated evenly over the useful life of the equipment. Therefore, the annual depreciation expense would be $32,000 / 8 years = $4,000.

2. Units-of-production method: Depreciation is allocated based on the number of units produced. In the first year, 600 units were produced out of the estimated 4,000 units total. So, the depreciation expense for the first year would be ($32,000 / 4,000 units) * 600 units = $4,800.

3. Double-declining-balance method: This method allocates more depreciation in the earlier years of an asset's life. The double-declining-balance rate is calculated as 2 / useful life. In this case, the rate would be 2 / 8 years = 25%. The depreciation expense for the first year would be ($32,000 - accumulated depreciation) * 25% = ($32,000 - 0) * 25% = $8,000.