Question

Mountain View Resorts purchased equipment at the beginning of 2021 for $46,000. Residual value at the end of an estimated four- year service life is expected to be $6,100. The machine operated for 2,100 hours in the first year and the company expects the machine to operate for a total of 12,000 hours over its four-year life. Calculate depreciation expense for 2021, using each of the following depreciation methods: (1) straight-line, (2) double-declining- balance, and (3) activity-based. (Round your intermediate calculations to 2 decimal places.) Depreciation Expense Straight-line Double-declining-balance Activity-based

Answer 1

Answer:

(1) straight-line = $9,975

(2) double-declining- balance = $23,000

(3) activity-based = $6,982.50

Explanation:

purchase cost $46,000

useful life 4 years

residual value $6,100

total operating hours 12,000

(1) straight-line = ($46,000 - $6,100) / 4 years = $9,975 fo 2021

(2) double-declining- balance = 2 x ($46,000 / 4 years) = $23,000 fro 2021

(3) activity-based = 2,100 hours x [$46,000 - $6,100) / 12,000 hours] = 2,100 x $3.325 = $6,982.50

The double declining method is considered an accelerated depreciation method, that is why it is so high.