Question

Equipment with a cost of $285000 has an estimated salvage value of $25000 and an estimated life of 4 years or 10000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3000 hours?

- $78000.
- $71250.
- $65000.
- $68750.

Answer 1

The amount of depreciation for the first full year, during which the equipment was used for 3,000 hours, is $78,000. This is calculated using the straight-line method based on the equipment's cost, salvage value, and estimated life. Option A is correct.

To calculate the annual depreciation using the straight-line method, you can use the formula:

`\[ \text{Depreciation per year} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Estimated Life}} \]`

- Cost = $285,000

- Salvage Value = $25,000

- Estimated Life = 4 years or 10,000 hours

First, let's calculate the annual depreciation for the entire life in terms of hours:

`\[ \text{Depreciation per hour} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Estimated Life in hours}} \]\[ \text{Depreciation per hour} = (285,000 - 25,000)/(10,000) \]\[ \text{Depreciation per hour} = (260,000)/(10,000) \] \text{Depreciation per hour} = \$26 \]`

Now, for the first full year (3,000 hours), the depreciation would be:

`\[ \text{Depreciation for the first full year} = \text{Depreciation per hour} * \text{Number of hours used} \]`

Depreciation for the first full year} = $26 × 3,000

Depreciation for the first full year = $78,000

Therefore, the correct answer is:

- A. $78,000.