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9 February, 00:05

Hawaiian Specialty Foods purchased equipment for $12,000. Residual value at the end of an estimated four-year service life is expected to be $1,200. The machine operated for 1,700 hours in the first year, and the company expects the machine to operate for a total of 10,000 hours. Calculate depreciation expense for the first year using each of the following depreciation methods:

(1) straight-line,

(2) double-declining-balance, and

(3) activity-based.

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Answers (1)
  1. 9 February, 01:45
    0
    1. $2,700

    2. $6,000

    3. $1,836

    Explanation:

    The computation of the depreciation expense for the first year is shown below:

    1) Straight-line method:

    = (Original cost - residual value) : (useful life)

    = ($12,000 - $1,200) : (4 years)

    = ($10,800) : (4 years)

    = $2,700

    In this method, the depreciation is same for all the remaining useful life

    2) Double-declining balance method:

    First we have to find the depreciation rate which is shown below:

    = One : useful life

    = 1 : 4

    = 25%

    Now the rate is double So, 50%

    In year 1, the original cost is $12,000, so the depreciation is $6,000 after applying the 50% depreciation rate

    3) Units-of-production method:

    = (Original cost - residual value) : (estimated machine hours)

    = ($12,000 - $1,200) : ($10,000 hours)

    = ($10,800) : ($10,000 hours)

    = $1.08 per hour

    Now for the first year, it would be

    = Machine hours in first year * depreciation per hour

    = 1,700 machine hours * $1.08

    = $1,836
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