Question

Harding corporation acquired real estate that contained land, building and equipment. The property cost harding $1,425,000.Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: land, $370,000; building, $1,100,000 and equipment, $730,000 . Assume that harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,050,000 units over its 5-year useful life and has salvage value of $17,000. Harding produced 270,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount harding will record for depreciation expense for the equipment in the first year?

a) $219,600
b) $58,500
c) $144,000
d) $26,600

Answer 1

To calculate the depreciation expense for the equipment for the first year using the units-of-production method, the initial cost must be reduced by the salvage value to find the depreciable base, the per-unit depreciation must be calculated, and then multiplied by the units produced in the first year. The closest option to the calculated depreciation expense of $183,330 is not listed in the choices provided, which suggests a discrepancy or a need for additional information.

Step-by-step explanation:

To calculate the depreciation expense for the equipment in the first year using the units-of-production method, we need to follow these steps:

1. Determine the cost to be depreciated (initial cost minus salvage value).
2. Calculate the per-unit depreciation (cost to be depreciated divided by the total units of production estimated).
3. Compute the depreciation expense for the first year (per-unit depreciation times the number of units produced that year).

Calculation:

Cost to be depreciated = $730,000 (equipment cost) - $17,000 (salvage value) = $713,000

Per-unit depreciation = $713,000 / 1,050,000 units = $0.679 per unit

Depreciation expense for first year = $0.679/unit x 270,000 units produced = $183,330

Therefore, the closest option to the calculated depreciation expense for the equipment in the first year is not listed among the choices provided. The provided choices are:

• a) $219,600
• b) $58,500
• c) $144,000
• d) $26,600

Since $183,330 is closest to option a), it could be that there is a discrepancy or that additional information is required to match any of the given choices.