Question

The sahara company purchased equipment on january 1, 2015, for $100,000. the equipment had an estimated residual value of $10,000, an estimated useful life of five years, and estimated lifetime output of 18,000 units. in 2016, the company produced 4,400 units and recorded depreciation expense of $22,000. what depreciation method did the company use?

Answer 1

The company used straight line depreciation based on number of units produced. This can be shown as follows:

Cost = $100,000
Life = 5 years or 18,000 units
Salvage value = $10,000

By straight line method;
Depreciation cost per unit = (100,000-10,000)/18,000 = $5

After producing 4,400 units, depreciation expense = 4,400*5 = $22,000.