Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000. Assume that Harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $34,000. Harding produced 265,000 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? (Do not round your intermediate calculations.)

Question

Quizplus · Accepted Answer

The depreciable cost of the equipment is $726,000 - $34,000 = $692,000 (salvage value is subtracted because it will be received back at the end of the useful life of the equipment).

The rate of depreciation per unit is ($692,000 / 1,000,000 units) = $0.692 per unit.

Depreciation expense for the year is calculated as (rate per unit × units produced in the year) = ($0.692 × 265,000 units) = $183,080.

Therefore, the closest amount of depreciation expense for the equipment in the first year is $157,145 (rounded to the nearest dollar).

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