Question

On January 1,2024 , the Allegheny Corporation purchased equipment for $115,000. The estimated service life of the equipment is 10 years and the estimated residual value is $5,000. The equipment is expected to produce 220,000 units during its life.

Calculate depreciation for 2024 and 2025 using each of the following methods.

Answer 1

To calculate depreciation for 2024 and 2025, the straight-line method, declining balance method, and units-of-production method can be used.

Step-by-step explanation:

The depreciation for 2024 and 2025 can be calculated using three different methods: straight-line method, declining balance method, and units-of-production method.

1. Straight-line method: Calculate the annual depreciation by subtracting the residual value from the initial cost and then dividing it by the estimated service life.
2. Declining balance method: Calculate the annual depreciation by applying a constant rate to the net book value at the beginning of the year.
3. Units-of-production method: Calculate the depreciation based on the number of units the equipment produces in a given year.

For each year, plug in the relevant values into the respective formulas to calculate the depreciation using each method. For example, for 2024, the depreciation using the straight-line method would be ($115,000 - $5,000) / 10 = $11,000.