Question

Hawaiian Specialty Foods purchased equipment for $29,000. Residual value at the end of an estimated four-year service life is expected to be $2,900. The machine operated for 3,000 hours in the first year, and the company expects the machine to operate for a total of 18,000 hours.

Calculate depreciation expense for the first year using each of the following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3) activity-based. (Do not round your intermediate calculations.)

Answer 1

The depreciation expense for the first year using the straight-line method is $6,525, using the double-declining-balance method is $14,500, and using the activity-based method is $4,333.33.

Step-by-step explanation:

Depreciation expense for the first year can be calculated using different depreciation methods:

1. Straight-Line Method:

The annual depreciation expense is calculated by subtracting the residual value from the initial cost and dividing the result by the service life.

Depreciation expense = (Initial cost - Residual value) / Service life

Depreciation expense = ($29,000 - $2,900) / 4 = $6,525

2. Double-Declining-Balance Method:

The annual depreciation expense is calculated by multiplying the book value at the beginning of the year by twice the straight-line depreciation rate.

Depreciation expense = Book value at beginning of year * (2 / Service life)

Book value at beginning of year = Initial cost - Accumulated depreciation

Depreciation expense = ($29,000 - $0) * (2 / 4) = $14,500

3. Activity-Based Method:

The annual depreciation expense is calculated by multiplying the depreciation rate per hour by the number of hours of machine usage in the first year.

Depreciation expense = Depreciation rate per hour * Number of hours of machine usage in the first year

Depreciation expense = ($29,000 - $2,900) / 18,000 * 3,000 = $4,333.33

1