Question

A company paid $517,000 to purchase equipment and $16,700 to have the equipment delivered to and installed in the company's production facilities. The equipment is expected to be used a total of 29,700 hours throughout its estimated useful life of seven years. The estimated residual value of the equipment is $6,700. The company began using the equipment on May 1, 2018. The company has an October 31, 2018 year-end. It used the equipment for a total of 12,900 hours between May 1 and October 31, 2018. Using the units-of-production method, what amount of depreciation expense would the company report in the income statement prepared for the year-ended October 31, 2018?

Answer 1

Answer:

Using the units-of-production method, the amount of depreciation expense would the company report in the income statement prepared for the year-ended October 31, 2018 = $ 228899

Explanation:

Given

Acquisition Cost of Equipment = $ 517,000+ $ 16700= $ 533,700

Total units of production= 29,700 hours

Residual Value = $ 6700

Units of Production= 12,900 hours

Formula:

Depreciation per unit= (Cost -Salvage value) / Total units of production* Units of Production

Depreciation per unit= ($ 533,700 - 6700/ 29700)*12900

Depreciation per unit=($ 52,7000 / 29700)*12900

Depreciation per unit=( 17.744)*12900

Depreciation per unit= 228898.98= $ 228899

As units of production are given we do not need to calculate it for half year. The depreciation is calculated for units of production.