Final answer:
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