Question

Kinder Company purchased a depreciable asset for $280,000. The estimated salvage value is $14,000, and the estimated useful life is 10,000 hours. Kinder used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?

a. $26,600
b. $29,260
c. $30,800
d. $266,000

Answer 1

b. $29,260

To calculate the depreciation expense using the activity method, subtract the salvage value from the asset's cost and divide by the estimated total usage to find the per hour rate. Then, multiply this rate by the actual annual usage. For Kinder Company's asset, the depreciation expense is $29,260 for the current year.

Step-by-step explanation:

The depreciation expense of an asset using the activity method is calculated by taking the cost of the asset, subtracting the salvage value, and then dividing that figure by the total estimated usage of the asset (in this case, hours). To find the annual depreciation, this rate is then multiplied by the actual usage for the year

The formula for depreciation expense using the activity method is:

Depreciation Expense = (Cost - Salvage Value) / Estimated Total Usage × Actual Usage

Applying this to Kinder Company's asset:

• Cost: $280,000
• Salvage Value: $14,000
• Estimated Total Usage: 10,000 hours
• Actual Usage during current year: 1,100 hours

First, calculate the depreciation rate per hour:

Depreciation Rate per Hour = ($280,000 - $14,000) / 10,000 hours

Depreciation Rate per Hour = $266,000 / 10,000 hours

Depreciation Rate per Hour = $26.60 per hour

Then, multiply this rate by the actual hours used:

Depreciation Expense = $26.60 per hour × 1,100 hours

Depreciation Expense = $29,260