On January 4, 2012, Peggy's Cafe acquired equipment for $180,000. The estimated life of the equipment is 4 years or 42,500 hours. The estimated residual value is $10,000. What is the depreciation for 2012, if Peggy's Cafe uses the asset 14,100 hours and uses the units-of-production method of depreciation?

Question

Quizplus · Accepted Answer

The units-of-production method calculates depreciation based on actual usage. The formula is: (Cost - Residual Value) / Total Estimated Hours = Depreciation per Hour. Then, multiply by actual hours used. Here, ($180,000 - $10,000) / 42,500 hours = $4 per hour. For 14,100 hours, depreciation is 14,100 * $4 = $56,400.

On January 4, 2012, Peggy's Cafe Acquired Equipment for $180,000