Question

Hawaiian Specialty Foods purchased equipment for $18,000. Residual value at the end of an estimated four-year service life is expected to be $1,800. The machine operated for 2,300 hours in the first year, and the company expects the machine to operate for a total of 15,000 hours. Calculate depreciation expense for the first year using each of the following depreciation methods: (1) straight-line, (2) double declining-balance, and (3) activity-based. (Do not round your intermediate calculations.) Depreciation Expense (1) Straight-line (2) Double-declining-balance (3) Activity-based

Answer 1

First year's deprecaition under each method is calculated as follows: 1. Straight line: Depreication expense = (18,000-1,800)/4 years = 4,050 2. Double-declining balance: Double declining rate = (100/4)x2 =50% Depreciation expense = 18,000x50% = 9,000 3. Activity based: Depreiciable cost = 18,000-1,800 =16,200 Depreciation expense = (16,200x2,300 hrs)/15,000 hrs =2,484