E7-43 Learning Objective 2: Computing units-of-production depreciation) Buff Gym

ID: 2599712 • Letter: E

Question

E7-43 Learning Objective 2: Computing units-of-production depreciation) Buff Gym purchased exercise equipment at a cost of $107,000, In addition, Buff paid $3,000 for a special platform on which to stabilize the equipment for use. Freight costs of $1,600 to ship the equipment were borne by the seller. Buff will depreciate the equipment by the units-of- production method, based on an expected useful life of 55,000 hours of exercise. The estimated residual value of the equipment is $11,000. How many hours did Buff Gym use the machine if depreciation expense is $4,320?

Explanation / Answer

Freight expenses will not be included since these are incurred by seller and not by buyer of asset

Particulars

Amount

Cost of asset

$107000

Other incidental cost incurred to stabilize the equipment

$3000

Total Cost of asset

$110000

Calculation of hours used

Depreciation = (Hours used for period/Total expected useful life in hours)*Depreciable value of equipment

Here, Depreciation = $4320

Total Expected life in hours of asset = 55000 Hours

Depreciable value of equipment = (Cost - Salvage value) = ($110000 - $11000) = $99000

Total Hours used during the year or for the period = Let 'x' To be calculated

Calculation-

$4320 = (x/55000)*$99000

$4320 = 1.8x

x = $4320/1.8 = 2400 Hours