Benton Corporation acquired real estate that contained land, building and equipment. The property cost Benton $825,000. Benton paid $175,000 in cash and issued a Note Payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $85,000; Building, $625,000; and Equipment, $250,000.
Assume that Benton uses the units-of-production method when depreciating its equipment. Benton estimates that the purchased equipment will produce 1,200,000 units over its 5 years useful life and has salvage value of $7,500. Benton produced 265,000 units with the equipment by the end of the first year of purchase. The equipment costs 214,841.89. What amount will Benton record for depreciation expense on the equipment in the first year?

Question

Quizplus · Accepted Answer

The equipment costs $214,841.89 and will produce 1,200,000 units over its 5 years useful life. The depreciation expense per unit is $214,841.89 / 1,200,000 = $0.179035. Benton produced 265,000 units with the equipment by the end of the first year of purchase, so the depreciation expense for the first year is $0.179035 * 265,000 = $47,234.43. However, the equipment has a salvage value of $7,500, so the depreciable base is $214,841.89 - $7,500 = $207,341.89. Therefore, the depreciation expense for the first year is $207,341.89 * $0.179035 = $45,788.

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