Norwood, Inc.

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 eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.

-Refer to the information for Norwood,Inc.
Based on this information,what method of depreciation will produce the maximum depreciation expense in 2018?

Question

Norwood, Inc.

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 eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.

-Refer to the information for Norwood,Inc.  
Based on this information,what method of depreciation will produce the maximum depreciation expense in 2018?

Quizplus · Accepted Answer

Units-of-production method will produce the maximum depreciation expense in 2018 because it allocates depreciation expense based on the actual usage of the asset. In this case, the crane was used 2,600 hours in 2018, which is more than the straight-line or double-declining-balance methods would have allocated.

Norwood, Inc. Norwood, Inc. Purchased a Crane at a Cost of $80,000