Question

Equipment with a cost of $444,000 has an estimated salvage value of $24,000 and an estimated life of 4 years or 10000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 3,900 hours?

Answer 1

The amount of depreciation for the first full year, during which the equipment was used 3,900 hours, is $163,800.

Step-by-step explanation:

To calculate the amount of depreciation for the first full year using the units-of-activity method, we need to determine the depreciation rate per unit of activity. The depreciation rate is calculated by subtracting the estimated salvage value from the cost of the equipment and dividing it by the estimated total units of activity.

In this case, the cost of the equipment is $444,000 and the estimated salvage value is $24,000. The estimated total units of activity are 10,000 hours over 4 years, so for the first year, the equipment was used 3,900 hours.

Using these values, the depreciation rate per hour can be calculated as follows:

Depreciation Rate = (Cost - Salvage Value) / Total Units of Activity

Depreciation Rate = ($444,000 - $24,000) / (10,000 hours)

Depreciation Rate = $420,000 / 10,000 hours

Depreciation Rate = $42 per hour

Finally, to calculate the amount of depreciation for the first full year, we multiply the depreciation rate per hour by the number of hours of usage in that year:

Depreciation = Depreciation Rate * Hours of Usage

Depreciation = $42/hour * 3,900 hours

Depreciation = $163,800