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Super Saver Groceries purchased store equipment for $31,000. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $4,000. During the 10-year period, the company expects to use the equipment for a total of 10,000 hours. Super Saver used the equipment for 1,500 hours the first year.Required:Calculate depreciation expense of the equipment for the first year, using each of the following methods. (Do not round your intermediate calculations.)

Respuesta :

Answer:

straight line method = $2,700

Using Double declining rate = $6,200

Activity based  = $4,050

Explanation:

Data provided:

Purchasing cost of the store equipment = $31,000

Service life = 10 years

Salvage value = $4,000

Useful life = 10,000 hours

Number of hours equipment used for the first year = 1,500

Now,

Depreciation using the straight line method

Annual depreciation  = [tex]\frac{\textup{(Cost - Salvage value)}}{\textup{Useful life}}[/tex]

=[tex]\frac{\textup{ (31,000-4000)}}{\textup{10}}[/tex]

= $2,700

Using Double declining rate

Double declining rate = [tex]\frac{\textup{1}}{\textup{useful life}}\times2[/tex]

[tex]2\times\frac{\textup{1}}{\textup{10}}\times100\%[/tex]

= 2 × 0.1 × 100%

= 20%

Therefore,

Depreciation for the first year = $31,000 × 20%

= $6,200

Activity based

= [tex]\frac{\textup{(Cost - Salvage value)}}{\textup{Useful life in hours}}\times\textup{Number of hours used}[/tex]

= [tex]\frac{\textup{(31,000-4,000)}}{\textup{10,000}}\times\textup{1,500}[/tex]

= $4050

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