On January 2, 2019, Konrad Corporation acquired equipment for $ 850 comma 000. The estimated life of the equipment is 5 years or 38 comma 000 hours. The estimated residual value is $ 14 comma 000. If Konrad Corporation uses the units of production method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2020, assuming that during this period, the asset was used 6 comma 000 hours?

Question

Antoine Mckenzie

Business

1 November, 17:39

On January 2, 2019, Konrad Corporation acquired equipment for $ 850 comma 000. The estimated life of the equipment is 5 years or 38 comma 000 hours. The estimated residual value is $ 14 comma 000. If Konrad Corporation uses the units of production method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2020, assuming that during this period, the asset was used 6 comma 000 hours?

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Ronald Pierce · Answer 1

The depreciation expense for the year under units of production method is $ 132,000

Explanation:

Computation of depreciation expense under the units of production method

Total cost of equipment $ 850,000

Salvage value of equipment $ (14,000)

Depreciable basis $ 836,000

Estimated useful life in hours 38,000

Depreciation per hour of usage $ 836,000 / 38,000 $ 22 per hour used

Total usage during the year 6000 hours

Depreciation expense 6000 hours * $ 22 per hour $ 132,000