Endeavor Company purchased a depreciable asset for $800,000. The estimated salvage value is $40,000, and the estimated useful life is 10,000 hours. Endeavor used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?

Question

Quizplus · Accepted Answer

To calculate the depreciation expense using the activity method, we must first calculate the depreciation rate per unit of activity.

Depreciation rate per unit of activity = (asset cost - salvage value) / total units of activity

Total units of activity = estimated useful life in hours

Depreciation rate per unit of activity = ($800,000 - $40,000) / 10,000 = $76 per hour

To calculate the depreciation expense for the current year, we multiply the depreciation rate per unit of activity by the number of hours the asset was used in the current year:

Depreciation expense = depreciation rate per unit of activity x number of hours used in the current year

Depreciation expense = $76 x 1,100 = $83,600

Therefore, the correct answer is B.

Endeavor Company Purchased a Depreciable Asset for $800,000