On January 1, 2021, Canseco Plumbing Fixtures purchased equipment for $30,000. Residual value at the end of an estimated four-year service life is expected to be $2,000. The company expects the equipment to operate for 10,000 hours. Calculate depreciation expense for 2021 and 2022 using each of the following depreciation meth- ods: (1) straight line, (2) double-declining balance, and (3) units-of-production using hours operated. The equip- ment operated for 2,200 and 3,000 hours in 2021 and 2022, respectively.

1.

$7000

$7000

2.

$15,000

7500

3.

6160

8400

Explanation:

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

(30,000 - 2000) / 4= $7000

Depreciation expense using the double declining method = Depreciation factor x cost of the asset

Depreciation factor = 2 x (1/useful life)

2/4 x 30,000 = $15000

book value in year 2 = 15,000

2/4 x 15000 = 7500

Activity method based on output = (output produced that year / total output of the machine) x (Cost of asset - Salvage value)

2200 / 10,000 x (30,000 - 2000)

3000 / 10,000 x (30,000 - 2000)