On January 1, 2014, Rugh Company purchased equipment with a list price of $32,00

Question

On January 1, 2014, Rugh Company purchased equipment with a list price of $32,000 with a 2% cash discount. The equipment was delivered under terms of FOB destination and freight costs amounted to $900. A total of $6,000 was paid for installation and testing. During the first year, Rugh paid $850 for insurance on the equipment and another $750 for routine maintenance and repairs. Rugh uses the units-of-production method of depreciation. Useful life is estimated at 5 years or 500,000 units and estimated salvage value is $2,000. During 2014, the equipment produced 100,000 units. What is the amount of depreciation for 2014?

$7,652

$6,272

$7,072

$7,472

Explanation / Answer

$7,072 Statement showing Computations Particulars Amount List Price                                  32,000.00 Discount@2%                                        640.00 Purchase cost                                  31,360.00 Installation Cost                                    6,000.00 Total Purchase Cost                                  37,360.00 Salvage Value Life in units                               500,000.00 Units in 2014                               100,000.00 Depreciation = (37,360-2,000)*100,000/500,000                                    7,072.00

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