Question

Super Saver Groceries purchased store equipment for $43,000. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $4,000. During the 10-year period, the company expects to use the equipment for a total of 13,000 hours. Super Saver used the equipment for 1,200 hours the first year.
Required: Calculate depreciation expense of the equipment for the first year, using each of the following methods

1. Straight-line.

Depreciation expence:

2.Double Declining Method

Depreciation expence:

3.Activity Based

Depreciation Expence:

Answer 1

Answer:

Straight-line = $3,900

Double Declining Method = $7,800

Activity Based = $3,600

Explanation:

1. Straight-line.

Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life

                                     = $43,000 - $4,000 / 10

                                    = $3,900

2. Double Declining Method

Deprectiation Expense = (2 x (Cost of Asset - Salvage Value)) / Useful Life

= 2 x ($43,000 - $4,000) / 10

= (2 x $39,000 ) / 10

= $78,000 / 10

= $7,800

3. Activity Based

Depreciation Expense = (Cost of Asset - Salvage Value) x Activity Peformed / Estimated Lifetime Acitity

= ($43,000 - $4,000) x 1,200 hours / 13,000 hours

= $39,000 x 1,200 / 13,000

= $3,600