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Harding Corporation acquired real estate that contained land,building and equipment.The property cost Harding $1,900,000.Harding paid $350,000 and issued a note payable for the remainder of the cost.An appraisal of the property reported the following values: Land,$374,000;Building,$1,100,000 and Equipment,$726,000.
-Assume that Harding uses the units of production method when depreciating its equipment.Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $34,000.Harding produced 265,000 units with the equipment by the end of the first year of purchase.
Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year?
A)$193,450
B)$125,200
C)$157,145
D)$165,890

Question

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Harding Corporation acquired real estate that contained land,building and equipment.The property cost Harding $1,900,000.Harding paid $350,000 and issued a note payable for the remainder of the cost.An appraisal of the property reported the following values: Land,$374,000;Building,$1,100,000 and Equipment,$726,000.
-Assume that Harding uses the units of production method when depreciating its equipment.Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $34,000.Harding produced 265,000 units with the equipment by the end of the first year of purchase.
Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year?
A)$193,450
B)$125,200
C)$157,145
D)$165,890

Quizplus · Accepted Answer

Depreciation expense for the first year can be calculated as follows:
Depreciation per unit = (Cost - Salvage value) / Total units
Depreciation per unit = ($726,000 - $34,000) / 1,000,000 = $0.692
Depreciation expense for the first year = Depreciation per unit x Units produced in the first year
Depreciation expense for the first year = $0.692 x 265,000 = $183,020
Therefore, the closest amount to the depreciation expense for the equipment in the first year is $157,145 (rounded to the nearest dollar), which is option C.

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