Question

Ironworks Industries paid $190,000 for a machine with a $7.000 salvage value and an estimated life of 200,000 hours Ironworks reports on a calendar year basis and used the machine for 1.800 hours during the first year it owned the asset. Which of the following statements accurately compare the first year depreciation expense if the asset had been purchased on January 1 of the current year versus a March 1 acquisition date. (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) O A. In both cases, the Depreciation Expense is $1.647. OB. Depreciation Expense if acquired January 1 is $1,647 and if acquired March 1 is $1,235 OC. Depreciation Expense if acquired January is $1,710 and if acquired March 1 is $1.425 O D. Depreciation Expense if acquired January 1 is $1,647 and if acquired March 1 is $1,373.

Answer 1

Cost of machine = $190,000

Salvage value = $7,000

Estimated life = 200,000 hours

Depreciation expense per hour = (Cost of machine-Salvage value )/Estimated life

= (190,000-7,000)/200,000

= 183,000/200,000

= $0.915

Hours run in year 1 = 1,800

Annual depreciation expense = Annual hours x Depreciation expense per hour

= 1,800 x 0.915

= $1,647

Under the units of activity method, time period does not matter. It is the number of units of activity on the basis of which, depreciation is calculated. Hence, whether machine is purchased on January 1 or March 1, It does not matter, in both the cases depreciation expense is $1,647.

Correct option is A.

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