Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,995,000. Harding paid $560,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $592,000; Building, $1,760,000 and Equipment, $1,168,000.Assume that Harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,110,000 units over its 5-year useful life and has salvage value of $18,000. Harding produced 276,000 units with the equipment by the end of the first year of purchase.Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year? (Round your intermediate percentages to the nearest whole number: i.e 0.054231 = 5%. Do not round any other intermediate calculations.)

Question

Quizplus · Accepted Answer

First, we need to calculate the depreciation rate per unit: 
Depreciation per unit = (cost - salvage value) / total estimated production units 
Depreciation per unit = ($1,168,000 - $18,000) / 1,110,000 = $1.05

Then, we can calculate the depreciation expense for the first year: 
Depreciation expense = depreciation per unit x units produced in the first year 
Depreciation expense = $1.05 x 276,000 = $289,800

Note that we should round the depreciation per unit to the nearest cent, and then round the final answer to the nearest dollar.

Therefore, the closest option to the calculated depreciation expense is choice C: $159,222.

Harding Corporation Acquired Real Estate That Contained Land, Building and Equipment