Question

Equipment with a cost of $450,000 has an estimated salvage value of $30,000 and an estimated total hours of 10,000 hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours?

a) $122,100
b) $97,200
c) $135,000
d) $108,000

Answer 1

The amount of depreciation for the first full year with 2,700 hours of usage is $113,400.

Step-by-step explanation:

To calculate depreciation using the units-of-production method, we need to find the depreciation cost per hour. The formula for depreciation per hour is (Cost - Salvage Value) / Total Estimated Hours. Plugging in the values, the depreciation per hour is ($450,000 - $30,000) / 10,000 = $42. To find the depreciation for the first full year, we multiply the depreciation per hour by the number of hours used, which is $42 * 2,700 = $113,400. Therefore, the amount of depreciation for the first full year is $113,400.