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.
What amount will Norwood,Inc.report as depreciation expense over the eight-year life of the equipment?

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.  
What amount will Norwood,Inc.report as depreciation expense over the eight-year life of the equipment?

Quizplus · Accepted Answer

To calculate the depreciation expense over the eight-year life of the equipment, we need to first calculate the depreciation per year. 
Depreciation per year = (Cost of equipment - Salvage value) / Useful life
Depreciation per year = ($360,000 - $40,000) / 8 = $40,000
Therefore, over the eight-year life of the equipment, Norwood, Inc. will report depreciation expense of $40,000 per year, which comes to a total of $75,000 (8 years x $40,000). Hence, the answer is option C.

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