Question

On June 1, Aggie Company purchased equipment for $ 50,000. The equipment has a 7yr life with a residual value of $5,000. Aggie uses units-of-production method depreciation and the equipment is expected to yield 9,000 operating hours.

(a)    Calculate the depreciation expense per hour of operation.

(b) The bulldozer is operated 1,000 hours in the first year, 200 hours in the second year, and 1,400 hours in the third year of operations. Journalize the depreciation expense for each year.

Date	Account Title	Debit	Credit
Year 1
Year 1
Year 3

Answer 1

Depreciation expense per hour = (Cost - Salvage value) / life in hours

= (50,000-5,000) / 9000

= 5 per hour

Year 1	Depreciation expense (5*1000)	5000
	Accumulated Depreciation		5000
Year 2	Depreciation expense (5*200)	1000
	Accumulated Depreciation		1000
Year 3	Depreciation expense (5*1400)	7000
	Accumulated Depreciation		7000

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