Equipment with a cost of $450,000 has an estimated salvage value of $30,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours?
A)$112,500.
B)$105,000.
C)$113,400.
D)$108,750.

Question

Quizplus · Accepted Answer

Step 1: Calculate depreciation per unit
Depreciation per unit = (cost - salvage value) / estimated total units of activity
We have estimated total units of activity as 10,000 hours over 4 years
So, estimated units of activity per year = 10,000 hours / 4 years = 2,500 hours
Depreciation per unit = ($450,000 - $30,000) / 10,000 = $42 per hour

Step 2: Calculate depreciation for the first full year
Depreciation for the first full year = Depreciation per unit x Actual units of activity for the year
Actual units of activity for the year is given as 2,700 hours
Depreciation for the first full year = $42 per hour x 2,700 hours = $113,400

Therefore, the answer is C) $113,400.

Equipment with a Cost of $450,000 Has an Estimated Salvage