On January 1, 2021, Canseco Plumbing Fixtures purchased equipment for $44,000. Residual value at the end of an estimated four-year service life is expected to be $8,000. The company expects the equipment to operate for 20,000 hours. The equipment operated for 2,900 and 3,700 hours in 2021 and 2022, respectively. Required:

a. Calculate depreciation expense for 2021 and 2022 using straight line method.

b. Calculate depreciation expense for 2021 and 2022 using double-declining balance method.

c. Calculate depreciation expense for 2021 and 2022 using units-of-production using hours operated.

a. $9,000

b. $22,000 and $11,000

c. $5,220 and $6,660

Explanation:

The computation of the depreciation expense for the two years are shown below:

a) Straight-line method:

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

= ($44,000 - $8,000) : (4 years)

= ($36,000) : (4 years)

= $9,000

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

So, in year 2021 and 2022, the depreciation expense would be $9,000

(b) 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 2021, the original cost is $44,000, so the depreciation is $22,000 after applying the 50% depreciation rate

And, in year 2022, the $22,000 * 50% = $11,000. The $22,000 is come from $44,000 - $22,000

(c) Units-of-production method:

= (Original cost - residual value) : (estimated production)

= ($44,000 - $8,000) : (20,000 hours)

= ($36,000) : (20,000 hours

= $1.8 per hours

For the 2021, it would be

= Production hours in 2021 year * depreciation per hour

= 2,900 hours * $1.8

= $5,220

Now for the 2022 year, it would be

= Production hours in 2022 year * depreciation per hour

= 3,700 hours * $1.8

= $6,660