Question

On January 1, 2021, Canseco Plumbing Fixtures purchased equipment for $34,000. Residual value at the end of an estimated four-year service life is expected to be $8,000. The company expects the equipment to operate for 10,000 hours. The equipment operated for 2,400 and 3,200 hours in 2021 and 2022, respectively.

Required:

a. Calculate depreciation expense for 2021 and 2022 using straight line method.
b. Calculate depreciation expense for 2021 and 2022 using double-declining balance method.
c. Calculate depreciation expense for 2021 and 2022 using units-of-production using hours operated.

Answer 1

PART-A: STRAIGHT LINE METHOD:

Formula: Straight line method = (Cost of an asset - salvage value) / useful life of an asset

Cost of an asset = $34000

Salvage value = $8000

Useful life = 4 years

Depreciation expenses using Straight line method = ($34000 - $8000) / 4 = $6500

YEAR	DEPRECIATION EXPENSE
2021	$6500
2022	$6500

PART-B: DOUBLE DECLINING BALANCE METHOD:

Formula: Double declining balance = (cost of an asset - accumulated depreciation) * 2 / useful life of an asset

Depreciation expenses using double declining balance method for the year 2021

= ($34000 - 0) * 2 / 4 = $17000

Depreciation expenses using double declining balance method for the year 2022

= ($34000 - $17000) * 2 / 4 = $8500

YEAR	DEPRECIATION EXPENSE
2021	$17000
2022	$8500

PART-C: UNITS OF PRODUCTION USING HOURS OPERATED:

Formula: Units of production method = (Cost of an asset - Salvage value) * Hours operated / Total operated hours

Depreciation expenses using Units of production method hours operated for the year 2021:

= ($34000 - $8000) * 2400 hours / 10000 hours = $6240

Depreciation expenses using Units of production method hours operated for the year 2022:

= ($34000 - $8000) * 3200 hours / 10000 hours = $8320

YEAR	DEPRECIATION EXPENSE
2021	$6240
2022	$8320

All the best....