Question

Super Saver Groceries purchased store equipment for $35,500. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $3,500. During the 10-year period, the company expects to use the equipment for a total of 10,000 hours. Super Saver used the equipment for 1,700 hours the first year Required:
Calculate depreciation expense of the equipment for the first year, using each of the following methods. (Do not round your intermediate calculations.)
1. Straight-line.
2. Double-declining-balance.
3. Activity-based.

Answer 1

Answer:

(i) $3,200

(ii) $7,100

(iii) $5,440

Explanation:

Cost of equipment = $35,500

Service life of equipment = 10-year

After 10-year equipment will be worth = $3,500

Equipment used for = 10,000 hours

Super Saver used the equipment for = 1,700 hours

1.

Depreciation expense:

= (Cost of equipment - Equipment worth after 10 years) ÷ Service life

= (35,500 - 3,500) ÷ 10

= $3,200

2.

Depreciation expense:

= Cost of equipment × Double-declining rate

= 35,500 × 20%

= $7,100

3.

Depreciation expense:

= (Cost of equipment - Equipment worth after 10 years) ÷ (Total hours × Hours taken by super saver)

= (35,500 - 3,500) ÷ (10,000 × 1,700)

= $5,440