Question

Super Saver Groceries purchased store equipment for $44,500. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $4,500. During the 10-year period, the company expects to use the equipment for a total of 10,000 hours. Super Saver used the equipment for 1,400 hours the first year.Required:Calculate depreciation expense of the equipment for the first year, using each of the following methods. (Do not round your intermediate calculations.)1. Straight-line.2. Double-declining-balance.3. Activity-based.

Answer 1

1) Using straight line method , depreciation for first year is $4,000

2) Using double declining balance , depreciation for first year is $8,900

3) Using activity based method, depreciation for first year is $5,600

Step-by-step explanation:

Given:

Cost = $44,500

Useful life = 10 years

Salvage value = $4,500

Useful life in hours = 10,000 hours

Super Saver used the equipment for 1,400 hours the first year.

1) Straight line method

Depreciation for first year = (cost - salvage value) ÷ useful life

= $(44,500 - 4,500) ÷ 10

= $4,000 per year

2) Double declining balance

Depreciation rate = (100 ÷ useful life) × 2

= (100 ÷ 10) × 2

= 20%

Depreciation for first year = $44,500 × 20%

= $8,900

3) Activity based

Rate = cost - salvage value ÷ useful life in hours

= ($44,500 - $4,500) ÷ 10,000

= 4 per hour

Depreciation for first year = 1,400 × 4

= $5,600