Question

Mountainview Resorts purchased equipment for $34,000. Residual value at the end of an estimated four-year service life is expected to be $8,900. The machine operated for 2,400 hours in the first year and the company expects the machine to operate for a total of 10,000 hours over its four year life.

Calculate depreciation expense for the first year 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.)

Answer 1

Straight line Method
A	Cost	$          34,000.00
B	Residual Value	$            8,900.00
C=A - B	Depreciable base	$          25,100.00
D	Life [in years left ]	4
E=C/D	Annual SLM depreciation	$            6,275.00

Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$               34,000.00	$            6,275.00	$    27,725.00	$        6,275.00

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Double declining Method
A	Cost	$          34,000.00
B	Residual Value	$            8,900.00
C=A - B	Depreciable base	$          25,100.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            6,275.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$               34,000.00	50.00%	$    17,000.00	$     17,000.00	$     17,000.00

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Activity based
A	Cost	$          34,000.00
B	Residual Value	$            8,900.00
C=A - B	Depreciable base	$          25,100.00
D	Usage in units(in Hours)	10000
E	Depreciation per Hour	$                    2.51

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
2018	$               34,000.00	2400	$      6,024.00	$     27,976.00	$       6,024.00