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 a 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?

Question

Quizplus · Accepted Answer

To calculate the depreciation expense for the equipment using the units-of-production method, we need to follow these steps:

1. Calculate the depreciation rate per unit:

Depreciation rate per unit = (Cost of equipment - Salvage value of equipment) / Total units of production
Depreciation rate per unit = ($726,000 - $34,000) / 1,000,000
Depreciation rate per unit = $0.692 per unit

2. Calculate the depreciation expense for the first year:

Depreciation expense = Depreciation rate per unit x Units produced in the first year
Depreciation expense = $0.692 x 265,000
Depreciation expense = $183,080

Therefore, the closest amount to the depreciation expense for the equipment in the first year is $157,145 (choice C). The other choices are not calculated correctly.

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