Question

Cardinal Industries purchased a generator that cost $11,000. It has an estimated life of five years and a residual value of $1,000. It is estimated to be good for 5,000 hours. Compute the depreciation expense for the first year using the units-of-activity method of depreciation if the generator was used for 1,040 hours.

Answer 1

Answer:

$2080

Explanation:

Given: Cost of generator= $11000.

           Residual value= $1000.

            Estimated life of generator= 5000 hours.

            Actual activity performed during the period= 1040 hours.

Now, finding the depreciation expense for the first year using the units-of-activity method.

Formula; $Depreciation\ expense= \frac{(cost- residual\ value)}{Total\ estimated\ life\ time\ activity} \times actual\ activity\ performed$

⇒ Depreciation expense= $\frac{(11000-1000)}{5000} \times 1040$

Opening parenthesis

⇒  Depreciation expense= $\frac{10000}{5000} \times 1040$

⇒  Depreciation expense=  $2 \times 1040 = \ 2080$

Hence, the depreciation expense for the first year using the units-of-activity method of depreciation is $2080.