Question

On january 1, californian 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 is calculated using the straight-line method ($6,525), the double-declining-balance method ($14,500), and the activity-based method ($4,350).

Step-by-step explanation:

When calculating the depreciation expense for the first year using the different methods, we need to consider the cost of the equipment, the residual value, and the usage expectations both in terms of years and activity level.

• Straight-line method: The total depreciable cost is the cost of the equipment minus the residual value. Here, it's $29,000 - $2,900 = $26,100. This amount is spread evenly over the life of the equipment, which is 4 years. So, the annual depreciation is $26,100 / 4 = $6,525 per year.
• Double-declining-balance method: This method is an accelerated depreciation method. It double the straight-line depreciation rate. The first year's depreciation would be 2 * (1/4) * $29,000 = $14,500. However, double-declining-balance cannot depreciate the asset below its residual value so further calculation may be necessary in the final year.
• Activity-based method: This method allocates the cost based on usage, which in this case is by hours of operation. With a total expected usage of 18,000 hours over its life and a depreciable cost of $26,100, the cost per hour is $26,100 / 18,000 = $1.45 per hour. For the first year, with 3,000 hours of operation, the depreciation would be 3,000 * $1.45 = $4,350.