Question

A company paid $507,000 to purchase equipment and $15,700 to have the equipment delivered to and installed in the company's production facilities. The equipment is expected to be used a total of 28,700 hours throughout its estimated useful life of seven years. The estimated residual value of the equipment is $5,700. The company began using the equipment on May 1, 2018. The company has an October 31, 2018 year-end. It used the equipment for a total of 11,900 hours between May 1 and October 31, 2018. Using the units-of-production method, what amount of depreciation expense would the company report in the income statement prepared for the year-ended October 31, 2018

Answer 1

Answer: $214366

Explanation:

The equipment cost will be:

= $507000 + $15700

= $522700

Total hours used of equipment = 28700 hours

Total hours utilized = 11900 hours

Depreciation expense will then be:

= Cost-Salvage value/Total hours × hours worked

= (522700 - 5700) / 28700 × 11900

= 517000/28700 × 11900

= 214366

Therefore, the depreciation expense is $214366.