Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2016 and was used 2,700 hours in 2016 and 2,600 hours in 2017.

-Refer to the information about Norwood, Inc. What amount will Norwood, Inc.report as depreciation expense over the 8-year life of the equipment?

Question

Quizplus · Accepted Answer

The depreciable cost of the crane can be calculated as follows:

Depreciable cost = Cost of crane - Residual value
Depreciable cost = $80,000 - $5,000 = $75,000

Using the straight-line method, the annual depreciation expense can be calculated as follows:

Annual depreciation expense = Depreciable cost / Estimated life
Annual depreciation expense = $75,000 / 8 = $9,375

Over the 8-year life of the equipment, Norwood, Inc. will report depreciation expense totaling:

Total depreciation expense = Annual depreciation expense x Number of years
Total depreciation expense = $9,375 x 8 = $75,000

Therefore, the answer is C) $75,000.