Equipment with a cost of $640,000 has an estimated salvage value of $40,000 and an estimated life of 4 years or 15,000 hours. It is to be depreciated using the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
A)$160,000.
B)$180,800.
C)$132,000.
D)$150,000.

Question

Quizplus · Accepted Answer

The depreciation per unit of activity is calculated as follows:

Depreciation per unit of activity = (Cost - Salvage value) / Estimated total units of activity
= ($640,000 - $40,000) / 15,000 hours
= $39.33 per hour

The amount of depreciation for the first full year (3,300 hours) can be calculated as follows:

Depreciation for the first full year = Depreciation per unit of activity × Units of activity in the first year
= $39.33 × 3,300 hours
= $129,689.40 (rounded to $132,000)

Therefore, the amount of depreciation for the first full year is $132,000. Option C is the correct choice.

Equipment with a Cost of $640,000 Has an Estimated Salvage