A company purchased an equipment system for $325,000 on January 2. The company expects the equipment to last for eight years or 81,250 hours of operation, with no estimated salvage value. During the first year, the equipment was in operation for 8,000 hours, while in the second year, the equipment was in operation for 8,700 hours. Compute the depreciation expense relating to the equipment for Year 1 and Year 2 using the following depreciation methods:
a. Straight-line.
b. Double-declining-balance.
c. Units-of-production.
a. $325,000/8 = $40,625 for both Year 1 and Year 2
b. DDB Rate = 1/8 * 2 = 25%
$325,000 * .25 = $81,250 for Year 1
($325,000 — $81,250) * .25 = $60,937.50 for Year 2
c. $325,000/81,250 = $4 per hour depreciation rate
$4/hour * 8,000 hours = $32,000 for Year 1
$4/hour * 8,700 hours = $34,800 for Year 2
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