Answer:
Instructions are below.
Explanation:
Giving the following information:
Purchasing price= $56,000
Residual value= $2,000
Estimated useful life= 4 years
A. To calculate the depreciation expense under the straight-line method, we need to use the following formula:
Annual depreciation= (original cost - salvage value)/estimated life (years)
Annual depreciation= (56,000 - 2,000)/4
Annual depreciation= 13,500
2021= (13,500/12)*= $10,125
2022= 13,500
B. To calculate the depreciation expense under the double-declining balance method, we need to use the following formula:
Annual depreciation= 2*[(book value)/estimated life (years)]
2021= [(2*13,500)/12]*9= $20,250
2022= [(54,000 - 20,250)/4]*2= $16,875
C. To calculate the depreciation expense under the units of production method, we need to use the following formula:
Annual depreciation= [(original cost - salvage value)/useful life of production in hours]*hours operated
The company expects the equipment to operate for 15,000 hours. The equipment operated for 3,500 and 4,300 hours in 2021 and 2022, respectively.
2021= (54,000/15,000)*3,500= $12,600
2022= 3.6*4,300= $15,480
